According to ISBP para. 48, if the due date is a non-banking day, payment will be due on the first banking day following the due date.
Scenario 1: When upon acceptance it is known that the due date will fall on a non-banking day, the usual practice is for the due date to be indicated as the banking day that immediately follows.
Scenario 2: When upon acceptance it is known that the due date will fall on a banking day, the due date in the accepted draft will be exactly according to the tenor. However, the due date later becomes a non-banking day (e.g. due to it being declared the Election Day), consequently the accepting bank is not able to pay on the due date.
In scenario 2, is the accepting bank liable for interest due to the delay in payment by one day? Can it cite ISBP para. 48 as defense?
Regards, Gabriel
Due date on a non-banking day
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HOANGTHIANHTHU_invalid
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Due date on a non-banking day
Hi,
If the due date falls on a non-banking day as in the example, the accepting bank is not liable for interest due to alleged delay in payment. A message would help explain the situation.
Best regards,
N.H.Duc
If the due date falls on a non-banking day as in the example, the accepting bank is not liable for interest due to alleged delay in payment. A message would help explain the situation.
Best regards,
N.H.Duc
Due date on a non-banking day
If the accepting issuing bank is not liable for interest, what would be the position of a confirming bank? If the confirming bank is required to pay on the original due date, but the issuing bank is allowed to pay on the next banking day, it means the confirming bank will incur a loss in interest.
Regards, Gabriel
Regards, Gabriel
Due date on a non-banking day
Gabriel,
Your original query appears to suggest that it relates to the bank that has accepted the bill.
Where a nominated bank has incurred an obligation to pay a presentation at a future date (e.g. by accepting a bill or incurring a DPU) the issuing bank is of course obliged to reimburse it with value no later than the date the nominated bank is obliged to pay. Therefore, by definition, if the nominated bank is obliged to pay on a day that is a non-banking day for the issuing bank, the issuing bank must take the necessary action to ensure it provides the nominated bank with good value reimbursement. (The first sentence of para 48 ISBP681 does no more than reflect this.) This should be quite simple and straightforward.
Regards, Jeremy
Your original query appears to suggest that it relates to the bank that has accepted the bill.
Where a nominated bank has incurred an obligation to pay a presentation at a future date (e.g. by accepting a bill or incurring a DPU) the issuing bank is of course obliged to reimburse it with value no later than the date the nominated bank is obliged to pay. Therefore, by definition, if the nominated bank is obliged to pay on a day that is a non-banking day for the issuing bank, the issuing bank must take the necessary action to ensure it provides the nominated bank with good value reimbursement. (The first sentence of para 48 ISBP681 does no more than reflect this.) This should be quite simple and straightforward.
Regards, Jeremy
Due date on a non-banking day
Jeremy
Sorry for not expressing clearly - What I mean is that the issuing bank is the accepting bank. It has accepted a draft to mature on a banking day but later the due date is declared a holiday due to a special event. Two questions: 1) Can the issuing bank invoke ISBP para 48 and pay on the first banking day after the original due date? 2) If the LC has been confirmed, what is the position of the confirming bank? (Since the due date remains a banking day in the confirming bank's location, is it obligated to pay the beneficiary on the original due date? Note that the issuing bank will only reimburse the confirming bank when it re-opens after the original due date.)
Regards, Gabriel
Sorry for not expressing clearly - What I mean is that the issuing bank is the accepting bank. It has accepted a draft to mature on a banking day but later the due date is declared a holiday due to a special event. Two questions: 1) Can the issuing bank invoke ISBP para 48 and pay on the first banking day after the original due date? 2) If the LC has been confirmed, what is the position of the confirming bank? (Since the due date remains a banking day in the confirming bank's location, is it obligated to pay the beneficiary on the original due date? Note that the issuing bank will only reimburse the confirming bank when it re-opens after the original due date.)
Regards, Gabriel
Due date on a non-banking day
Gabriel,
It is your suggestion that a bank could have confirmed a credit where the draft is drawn on the issuing bank that I find confusing. I can only suppose that the credit in question is available by negotiation. In such a case, the confirming bank may well have already purchased the drafts by advancing funds and thus the beneficiary may have already received settlement. Of course, it may have instead committed itself to advancing funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
Firstly, notwithstanding what para 48 says, I believe that nominated banks, when negotiating only concern themselves with non-banking days of the country of the currency concerned and not of the issuing bank and regard themselves as being entitled to receive good value if a banking day of the currency concerned is not a banking day of the issuing bank’s country.
Secondly, following on from this, my opinion is that the issuing bank is obliged effect settlement value the original due date if the currency of the credit is not that of the country which has declared the unanticipated non-banking day, as it is still quite straightforward for good value to be given. Furthermore, if the currency of the credit is that of the country which has declared the unanticipated non-banking day, given the confirming bank will have negotiated on the basis of the information available to it (regarding banking days in the currency concerned) at the time of negotiation, my view is also that the issuing bank must match the confirming bank’s obligation, in terms of value, that it gave with the issuing bank’s authority or pay interest if it does not.
Regards, Jeremy
It is your suggestion that a bank could have confirmed a credit where the draft is drawn on the issuing bank that I find confusing. I can only suppose that the credit in question is available by negotiation. In such a case, the confirming bank may well have already purchased the drafts by advancing funds and thus the beneficiary may have already received settlement. Of course, it may have instead committed itself to advancing funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
Firstly, notwithstanding what para 48 says, I believe that nominated banks, when negotiating only concern themselves with non-banking days of the country of the currency concerned and not of the issuing bank and regard themselves as being entitled to receive good value if a banking day of the currency concerned is not a banking day of the issuing bank’s country.
Secondly, following on from this, my opinion is that the issuing bank is obliged effect settlement value the original due date if the currency of the credit is not that of the country which has declared the unanticipated non-banking day, as it is still quite straightforward for good value to be given. Furthermore, if the currency of the credit is that of the country which has declared the unanticipated non-banking day, given the confirming bank will have negotiated on the basis of the information available to it (regarding banking days in the currency concerned) at the time of negotiation, my view is also that the issuing bank must match the confirming bank’s obligation, in terms of value, that it gave with the issuing bank’s authority or pay interest if it does not.
Regards, Jeremy
Due date on a non-banking day
Jeremy
Yes. The assumption is that the credit is available with the confirming bank by negotiation with drafts drawn on the issuing bank, and the beneficiary in this particular case expects to receive funds from the confirming bank on the due date. (Cash-rich beneficiaries do not want negotiation before due date to avoid paying interest.)
The text of para 48 is “payment must be available in immediately available funds on the due date at the place where the draft or documents are payable”. Take a USD credit issued by a bank in Jakarta for example. When the issuing bank in Jakarta accepts a draft drawn on it, the draft is payable by the issuing bank in Jakarta. Jakarta is the place where the draft is payable. New York may be the place of settlement for USD, but it is not the place where the draft is payable.
Because the due date has become a non-banking day in Jakarta, the issuing bank is not able to give timely instruction to its USD correspondent bank in New York to transfer the funds to the confirming bank on the original due date. Since para 48 provides that “if the due date is a non-banking day, payment will be due on the first banking day following the due date”, my question is whether this applies to an unanticipated non-banking day as well.
Taking it further, let us bring force majeure into the picture. If as a result of an earthquake the due date becomes a non-banking day in Jakarta, what would be the position? According to article 36, a bank assumes no liability or responsibility for the consequences arising out of force majeure events. It follows that the issuing bank in Jakarta is not liable to pay interest for the delay in payment. Para 48 fits in well, in requiring the paying bank to make payment on the first banking day following the due date.
Regards, Gabriel
[edited 9/26/2012 3:42:46 PM]
[edited 9/26/2012 3:46:20 PM: To make the assumption clearer.]
[edited 9/26/2012 3:46:44 PM]
Yes. The assumption is that the credit is available with the confirming bank by negotiation with drafts drawn on the issuing bank, and the beneficiary in this particular case expects to receive funds from the confirming bank on the due date. (Cash-rich beneficiaries do not want negotiation before due date to avoid paying interest.)
The text of para 48 is “payment must be available in immediately available funds on the due date at the place where the draft or documents are payable”. Take a USD credit issued by a bank in Jakarta for example. When the issuing bank in Jakarta accepts a draft drawn on it, the draft is payable by the issuing bank in Jakarta. Jakarta is the place where the draft is payable. New York may be the place of settlement for USD, but it is not the place where the draft is payable.
Because the due date has become a non-banking day in Jakarta, the issuing bank is not able to give timely instruction to its USD correspondent bank in New York to transfer the funds to the confirming bank on the original due date. Since para 48 provides that “if the due date is a non-banking day, payment will be due on the first banking day following the due date”, my question is whether this applies to an unanticipated non-banking day as well.
Taking it further, let us bring force majeure into the picture. If as a result of an earthquake the due date becomes a non-banking day in Jakarta, what would be the position? According to article 36, a bank assumes no liability or responsibility for the consequences arising out of force majeure events. It follows that the issuing bank in Jakarta is not liable to pay interest for the delay in payment. Para 48 fits in well, in requiring the paying bank to make payment on the first banking day following the due date.
Regards, Gabriel
[edited 9/26/2012 3:42:46 PM]
[edited 9/26/2012 3:46:20 PM: To make the assumption clearer.]
[edited 9/26/2012 3:46:44 PM]
Due date on a non-banking day
Gabriel,
1. I do not agree that the beneficiary will automatically expect to receive funds from the confirming bank on the due date, as the confirming bank may have already ‘advanced’ per Article 2 at the time documents were presented.
2. I agree with and already understood your 2nd para.
3. Regarding your 2nd para:
A. I wholly disagree that “Because the due date has become a non-banking day in Jakarta, the issuing bank is not able to give timely instruction to its USD correspondent bank in New York to transfer the funds to the confirming bank on the original due date”. The issuing banking can despatch its instructions the last banking day before the non-banking day in the issuing bank’s country that payment is due.
B. and your second sentence, I do not have the same understanding of the implications of para 48 as you would appear to have (notwithstanding my point 2 above). To take your example, the only way an Indonesian bank can effectively make USD available to a nominated bank or foreign beneficiary is through an account in the USA, most probably NY as this is where most banks keep nostro accounts. Therefore, whatever para 48 may appear to say, in practice the Indonesian bank will have to make the USD available in NY in order to settle its obligations. Therefore, it should effect settlement on the NY banking day payment is due.
4. ‘Force majeure’ events do not create non-banking days; see the definition in Art 2 and note the word ‘regularly’.
Overall I think you are trying to read too much into para 48. Quite simply, an issuing bank should effect settlement based on the banking days of the currency concerned and not those of its own country if the currency concerned is not that of its own country.
Regards, Jeremy
[edited 9/26/2012 10:05:50 AM]
1. I do not agree that the beneficiary will automatically expect to receive funds from the confirming bank on the due date, as the confirming bank may have already ‘advanced’ per Article 2 at the time documents were presented.
2. I agree with and already understood your 2nd para.
3. Regarding your 2nd para:
A. I wholly disagree that “Because the due date has become a non-banking day in Jakarta, the issuing bank is not able to give timely instruction to its USD correspondent bank in New York to transfer the funds to the confirming bank on the original due date”. The issuing banking can despatch its instructions the last banking day before the non-banking day in the issuing bank’s country that payment is due.
B. and your second sentence, I do not have the same understanding of the implications of para 48 as you would appear to have (notwithstanding my point 2 above). To take your example, the only way an Indonesian bank can effectively make USD available to a nominated bank or foreign beneficiary is through an account in the USA, most probably NY as this is where most banks keep nostro accounts. Therefore, whatever para 48 may appear to say, in practice the Indonesian bank will have to make the USD available in NY in order to settle its obligations. Therefore, it should effect settlement on the NY banking day payment is due.
4. ‘Force majeure’ events do not create non-banking days; see the definition in Art 2 and note the word ‘regularly’.
Overall I think you are trying to read too much into para 48. Quite simply, an issuing bank should effect settlement based on the banking days of the currency concerned and not those of its own country if the currency concerned is not that of its own country.
Regards, Jeremy
[edited 9/26/2012 10:05:50 AM]
Due date on a non-banking day
Jeremy
It is part of the assumption that the beneficiary does not want negotiation before the due date and therefore expects to receive funds from the confirming bank on the due date. I have since made changes to the first paragraph of my previous posting to make the assumption clearer.
Regards, Gabriel
It is part of the assumption that the beneficiary does not want negotiation before the due date and therefore expects to receive funds from the confirming bank on the due date. I have since made changes to the first paragraph of my previous posting to make the assumption clearer.
Regards, Gabriel
Due date on a non-banking day
Under normal circumstances I believe most of the banks cover the funds in advance and hence if the currency is USD it must have been covered and remitted to the reimbursing bank (in this case the confirming bank) for value the date of acceptance.