Does a bank willing to negotiate a LC by way of acceptance of drafts becomes automatically a confirming bank, even where the confirmation instructions state 'without'??
As per article 10 (c) UCP 500, A nominated bank if not a confirming bank is not bound to accept drafts or negotiate etc.
Assuming it does accept drafts or negotiates, doesnt it become a confirming bank atleast in the sense that it is liable to pay to the beneficiary even if receives no payment from the issuing bank?
If the L/C is available by Acceptance and it is not confirmed by the nominated bank, then the drafts are likely to be drawn on the issuing bank and cannot, therefore, be accepted by any other bank.
If the L/C is available by negotiation with the nominated bank and they agree to actually negotiate, then the beneficiary will receive payment at time of document presentation to the nominated bank. If the negotiation is "without recourse" then payment cannot be reclaimed if the issuing bank fails to reimburse the negotiating bank.
I agree with my colleagues here, but just a couple of other points; you do not negotiate "by way of acceptance of drafts" - as a negotiating bank you would be purchasing those drafts and paying immediate funds to the beneficiary.
The other point is that as a beneficiary there is very little point in having your local bank negotiate and confirm because you are effectively paying for the same thing twice.
The main reason for seeking confirmation is to move the risk of non-payment from that of the issuing bank in a foreign country to your own bank domestically. The domestic bank undertakes to pay you in the event that the issuing bank doesn't. If the L/C is available by negotiation with your local bank and they agree to negotiate, then you receive the proceeds of the sale before the issuing bank has received the documents - as long as the negotiation is done without recourse to the beneficiary then the additional confirmation adds no value.
The Negotiating bank will not act automatically as a confirming bank If, l/c is calling as “confirmation: without.
Adding confirmation in various stages are as follows.
Some of the L/C, the negotiation is restricted (filed 41: D) to the counter of advising bank only. In that case you have to give written request to advising bank for adding confirmation of the L/C. After adding confirmation, the bank will provide a confirmation letter or adding in the L/C by an amendment to the beneficiary. Also the bank will request the issuing bank to change the filed 49: as confirm.
In case 41:D is saying any bank, then you have option, to negotiate the charges with different banks. After adding confirmation you can request the applicant to change the filed 41:d with the negotiating bank.
In case the field 49: D is confirm , and the confirmation charges are on account of applicant, the advising bank will automatically add the confirmation without any written request from beneficiary. After adding confirmation, the bank will give confirmation letter to the beneficiary.
Thank you. i am still
Thank you. i am still confused slightly.
As per article 10 (c) UCP 500, A nominated bank if not a confirming bank is not bound to accept drafts or negotiate etc.
Assuming it does accept drafts or negotiates, doesnt it become a confirming bank atleast in the sense that it is liable to pay to the beneficiary even if receives no payment from the issuing bank?
Clarification
If the L/C is available by Acceptance and it is not confirmed by the nominated bank, then the drafts are likely to be drawn on the issuing bank and cannot, therefore, be accepted by any other bank.
If the L/C is available by negotiation with the nominated bank and they agree to actually negotiate, then the beneficiary will receive payment at time of document presentation to the nominated bank. If the negotiation is "without recourse" then payment cannot be reclaimed if the issuing bank fails to reimburse the negotiating bank.
Negotiating and Confirming
I agree with my colleagues here, but just a couple of other points; you do not negotiate "by way of acceptance of drafts" - as a negotiating bank you would be purchasing those drafts and paying immediate funds to the beneficiary.
The other point is that as a beneficiary there is very little point in having your local bank negotiate and confirm because you are effectively paying for the same thing twice.
The main reason for seeking confirmation is to move the risk of non-payment from that of the issuing bank in a foreign country to your own bank domestically. The domestic bank undertakes to pay you in the event that the issuing bank doesn't. If the L/C is available by negotiation with your local bank and they agree to negotiate, then you receive the proceeds of the sale before the issuing bank has received the documents - as long as the negotiation is done without recourse to the beneficiary then the additional confirmation adds no value.
confirming bank
Untile n unless confirming bank add its confirmation, confirmation wil not happen.
Negotiating bank can only negotiate the dox with recourse.
Negotiating bank will not act automatically a confirming bank
The Negotiating bank will not act automatically as a confirming bank If, l/c is calling as “confirmation: without.
Adding confirmation in various stages are as follows.
Some of the L/C, the negotiation is restricted (filed 41: D) to the counter of advising bank only. In that case you have to give written request to advising bank for adding confirmation of the L/C. After adding confirmation, the bank will provide a confirmation letter or adding in the L/C by an amendment to the beneficiary. Also the bank will request the issuing bank to change the filed 49: as confirm.
In case 41:D is saying any bank, then you have option, to negotiate the charges with different banks. After adding confirmation you can request the applicant to change the filed 41:d with the negotiating bank.
In case the field 49: D is confirm , and the confirmation charges are on account of applicant, the advising bank will automatically add the confirmation without any written request from beneficiary. After adding confirmation, the bank will give confirmation letter to the beneficiary.
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