As a result it is a vital importance to understand banks, their roles and responsibilities in order to act correctly under a letter of credit transaction. Issuing bank, on the other hand, is the bank that issues a letter of credit at the request of an applicant or on its own behalf. After making the definitions, we can now proceed to understand the key differences between advising banks and issuing banks.
Issuing banks draft and issue letters of credit. Advising banks only transmit already issued letters of credit to beneficiaries. In practice, German banks confirm the credits issued in African countries such as Ethiopia, Nigeria, etc. The same structure applies for the French banks for the letters of credit issued in Senegal, Morocco, Algeria etc. As a result a confirming bank may or may not be adding its confirmation to a given letter of credit, based on solely its own decision.
But if the confirming bank decides to confirm, it will be irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.
If the confirming bank adds its confirmation to the credit without any request from the issuing bank, then this procedure will be called as a silent confirmation or unauthorized confirmation. Confirming banks pay letter of credit amount to the beneficiaries without recourse basis. Do you want to know more about without recourse term? Please click here for more information. Sunday, November 14, Homepage Letter of Credit Consultancy Contact.
Home Banks Confirming Bank. Banks Confirming Bank. After a price is agreed upon, along with the other terms of the contract, the specifics of how goods will be shipped to the buyer are negotiated. At this stage of the agreement, a letter of credit is required.
This is often done when a first purchase between the two parties occurs, the purchase is large enough to cause financial hardship if not paid, or something goes wrong with the shipping portion of the transaction. Although the letter of credit is part of the sales agreement between an exporter and importer, it is a separate document issued by the bank s involved. A letter of credit is a legally binding document. It is a document which is interpreted literally, so every term with the agreement must be included to ensure that the payments will be issued as promised.
Citibank is a frequent participant in transactions which include a letter of credit. They offer letters of credit in Africa, Asia, Latin America, and some regions of Europe when companies or certain individuals may be unable to obtain international credit on their own to make their required purchases.
This also reduces the commercial credit risk of the issuing bank. When advising a letter of credit, the bank assumes no other liability. On receipt of the documents for examination and payment, the advising bank will pay the seller only if it has received good funds from the issuing bank, even if it was specifically named as paying bank in the letter of credit. Confirmation By confirming a letter of credit, the advising or another bank assumes the same responsibilities as the issuing bank, including the obligation to pay against presented documents if they are in order and all of the letter of credit terms are met.
In effect, the beneficiary has the individual promise of two banks to pay against conforming documents; the issuing bank and the confirming bank.
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