Draft on Issuing Bank in Confirmed Lc

[DMShetty_]

We had issued an Import Lc available by negotiation, authorising the advising Bank to add their confirmation and the Draft to be drawn on Confirming Bank. The advising Bank agreed to Confirm the Lc but wanted the draft to be drawn on us (i.e. Issuing Bank). Whether the advising Bank's request is in order?

[ThuHoangAnh_]

Hi,

It is true that under confirmed L/Cs drafts are normally drawn on the confirming bank. Yet, this does not mean that drafts drawn on the issuing bank is impossible.

If the sight draft is drawn on the confirming bank and the documents presented constitutes a complying presentation, the confirming bank must pay at sight (not negotiate).

If the sight draft is drawn on the issuing bank and the documents presented to the confirming bank constitutes a complying presentation, the confirming bank must negotiate without recourse.

Best regards,
N.H.Duc

[DMShetty_]

If both, Draft on Confirming Bank or Issuing Bank, is acceptable, why in practice, Draft on Confirming bank is preferred? From Legal point of view which draft is safer for Confirming Bank?

[NigelHolt]

If the credit is available by negotiation with the confirming bank drafts should be drawn on the issuing bank and not the confirming bank. Obviously if the credit is available by sight payment or acceptance with the confirming bank drafts have to be on the confirming bank and not the issuing bank.
[edited 3/19/2009 8:52:53 AM]

[GlennRansier_]

It is technically incorrect for a bank to “negotiate” a draft(s) drawn on themselves. Banks cannot “purchase” paper drawn on themselves. Instead, the nominated bank would be making a "sight payment", and without the beneficiary’s agreement, it will usually have no recourse to the beneficiary. If you confirmed the LC the expectation of no recourse is what UCP expects. However, under advised only LCs, a bank must consider their local laws before effecting the payment.