Dear DC-PRO Subscribers,
I am currently reviewing my bank’s policies and procedures with regard to transferable credits. I would be most grateful if subscribers would let me know (without liability/responsibility on their part) if they agree or disagree with the propositions below, regarding sub-Article 48j (the ‘sub-Art’). The propositions, which pre-suppose the Transferring Bank is also the Nominated Bank, are:
1. The sub-Art does not allow the ‘place of availability’ to be changed where the credit is available by deferred payment or acceptance.
2. Where the place of payment is changed, the ‘new’ nominated bank under the transfer (the ‘Transfer Nominated Bank’) -created by virtue of the place of payment being changed- will have to be given ‘reimbursement’ instructions by the Transferring Bank, in order to allow Transfer Nominated Bank to make (‘sight’) payment on presentation of complying documents by the second beneficiary.
3. Such reimbursement instructions will, of necessity, require the Transfer Nominated Bank either to debit the Transferring Bank’s a/c in the Transfer Nominated Bank’s books or to make demand for ‘reimbursement’ on the Transferring Bank.
4. On receipt by the Transferring Bank, from the Transfer Nominated Bank, of a notice of debit or claim for ‘reimbursement’ the Transferring Bank is entitled to obtain ‘reimbursement’, from the Issuing Bank, in accordance with the original credit terms. In other words, it does not have to await arrival of the second beneficiary’s documents and substitution of invoices etc, by the first beneficiary, to take place.
5. If the first beneficiary wishes to avoid revealing the price it is paying for the goods purchased from the second beneficiary, the only way of getting round 4. above is for the first beneficiary to agree with the Transferring Bank that the Transferring Bank will fund the payment made by the Transfer Nominated Bank to the second beneficiary, until complying documents substitution has taken place, and that the first beneficiary will pay the resulting interest charge. In other words, the Transferring Bank will ‘reimburse’ the Transfer Nominated Bank but not reimburse itself until complying substitution has taken place and will look to the first beneficiary for interest.
As well as being pleased to hear the views of Discussion Forum ‘regulars’, I shall also be pleased to hear from those who have previously not contributed to the Discussion Forum, who I urge to ‘take the plunge’ (thereby increasing the sum of our collective knowledge).
Thanks in advance, Jeremy Smith
[edited 3/18/02 12:51:36 PM]
[edited 3/18/02 12:56:54 PM]
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Jeremy
Which procedures are you reviewing in line with? Is it under UCP 500 48 J or UCP 400 54 G?
Your reference to sub article 54j is not in either rule.
I hope I am not disappointing you as I a not the virgin you are looking for. Any way we are the ones who “deflower” and help extract the bulb.
Which procedures are you reviewing in line with? Is it under UCP 500 48 J or UCP 400 54 G?
Your reference to sub article 54j is not in either rule.
I hope I am not disappointing you as I a not the virgin you are looking for. Any way we are the ones who “deflower” and help extract the bulb.
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Hatem,
Clearly a 'slip of the brain' on my part. This s/b 48j. I have corrected accordingly & look forward to your views. (I also notice the concluding, unintended, metaphor is rather unfortunate, so I have amended that as well.)
Thanks, Jeremy
[edited 3/18/02 12:55:32 PM]
Clearly a 'slip of the brain' on my part. This s/b 48j. I have corrected accordingly & look forward to your views. (I also notice the concluding, unintended, metaphor is rather unfortunate, so I have amended that as well.)
Thanks, Jeremy
[edited 3/18/02 12:55:32 PM]
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PGauntlett
- Posts: 153
- Joined: Fri Apr 05, 2019 5:25 pm
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Hi Jeremy,
When issuing a transferable l/c the issuing bank must, of course, be aware that certain events may happen outside his control but at his (and beneficiary's) risk such as, transfer to more than one beneficiary and, as applicable to this posting, transfer of place of payment.
As an issuing bank I would recommend to my client that payment should be restricted to the counters of the transferring bank. This protects the applicant from the l/c being made payable at a place where there may be doubts over the local banks' checking abilities.
As regards KBC as a transferring bank it is our policy (exercising 48C) not to transfer l/c's with the place of payment changed. This is to avoid:
1. the obligation to give a separate reimbursement condition in transferred l/c
2. arguments with Transfer Nominated Bank over discrepancies with them in possession of funds
3. problems regarding Art 14iii (i.e. transferring bank may be obliged to refund issuing bank prior to repayment from TNB)
4. having to make a 2nd claim from issuing bank for difference between 2 invoices.
However, there are situations where a bank needs to be flexible and I agree with your procedures although they make no mention of negotiation credits. Point 5, though, does seems rather unwieldly and, maybe, in that situation the l/c should remain available with transferring bank (although there is always a chance that buying price may be revealed if Bene falls foul of Art 48i-2nd para).
Phil
ps preferred the 'virgin' reference. Luckily I printed it before your amendment so it has been safely stored for posterity!
[edited 3/18/02 4:11:48 PM]
When issuing a transferable l/c the issuing bank must, of course, be aware that certain events may happen outside his control but at his (and beneficiary's) risk such as, transfer to more than one beneficiary and, as applicable to this posting, transfer of place of payment.
As an issuing bank I would recommend to my client that payment should be restricted to the counters of the transferring bank. This protects the applicant from the l/c being made payable at a place where there may be doubts over the local banks' checking abilities.
As regards KBC as a transferring bank it is our policy (exercising 48C) not to transfer l/c's with the place of payment changed. This is to avoid:
1. the obligation to give a separate reimbursement condition in transferred l/c
2. arguments with Transfer Nominated Bank over discrepancies with them in possession of funds
3. problems regarding Art 14iii (i.e. transferring bank may be obliged to refund issuing bank prior to repayment from TNB)
4. having to make a 2nd claim from issuing bank for difference between 2 invoices.
However, there are situations where a bank needs to be flexible and I agree with your procedures although they make no mention of negotiation credits. Point 5, though, does seems rather unwieldly and, maybe, in that situation the l/c should remain available with transferring bank (although there is always a chance that buying price may be revealed if Bene falls foul of Art 48i-2nd para).
Phil
ps preferred the 'virgin' reference. Luckily I printed it before your amendment so it has been safely stored for posterity!
[edited 3/18/02 4:11:48 PM]
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Phil,
I am astonished that someone so “honourable” would do such a thing (not). If you don’t tear it up straight away I’ll cry and stamp my feet.
Oh, and thanks for the info/views above.
Regards, Jeremy
I am astonished that someone so “honourable” would do such a thing (not). If you don’t tear it up straight away I’ll cry and stamp my feet.
Oh, and thanks for the info/views above.
Regards, Jeremy
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KarenHan_disabled
- Posts: 12
- Joined: Fri Apr 05, 2019 5:20 pm
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Jeremy,
Being the transferring bank, we will not incorporate any reimbursement instructions or authorize the transferee's banker to debit our account for Transfer LC. In our Transfer LC, payment will only be effected to the 2nd beneficiary (transferee) upon receipt of good funds from the LC Issuing bank. It is the arrangement between the transferee and its banker for any financial requirements.
Regards,
ahming
Being the transferring bank, we will not incorporate any reimbursement instructions or authorize the transferee's banker to debit our account for Transfer LC. In our Transfer LC, payment will only be effected to the 2nd beneficiary (transferee) upon receipt of good funds from the LC Issuing bank. It is the arrangement between the transferee and its banker for any financial requirements.
Regards,
ahming
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Ahming,
Many thanks for the above. I take it that you therefore do not allow the place of pay't to be changed, per sub-Article 48j.
Jeremy
Many thanks for the above. I take it that you therefore do not allow the place of pay't to be changed, per sub-Article 48j.
Jeremy
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Jeremy,
Our practice
When we transfer a credit, unless we have been nominated as a confirming and have added our confirmation to it, we don’t provide reimbursement. We indicate in the text of the LC that we will only pay if the letter of credit issuing bank pays us.
Other comments:
1. The sub-article (48j) is silent in regards to a letter of credit available by deferred payment or acceptance. Thus I don't believe it prohibits the change in the place of its availability. A freely available credit will be available at any bank.
2. If an LC is available at specific nominated bank, then I don’t believe there will be the so-called "new" nominated bank. The letter of credit will be restricted to a specific bank and will not be available at any other bank. If above view holds, then point number three (3) and (4) in your query would not exist.
3. Where the credit allows substitution of drafts & invoices of the 2nd beneficiary by those of the 1st BENE, payment is usually restricted to the transferring bank. Transferring Banks that would like to take the risk as stipulate in point five (5) would rather issue a back-to-back credit rather than go to such hassle.
regards
[edited 3/19/02 10:58:53 AM]
Our practice
When we transfer a credit, unless we have been nominated as a confirming and have added our confirmation to it, we don’t provide reimbursement. We indicate in the text of the LC that we will only pay if the letter of credit issuing bank pays us.
Other comments:
1. The sub-article (48j) is silent in regards to a letter of credit available by deferred payment or acceptance. Thus I don't believe it prohibits the change in the place of its availability. A freely available credit will be available at any bank.
2. If an LC is available at specific nominated bank, then I don’t believe there will be the so-called "new" nominated bank. The letter of credit will be restricted to a specific bank and will not be available at any other bank. If above view holds, then point number three (3) and (4) in your query would not exist.
3. Where the credit allows substitution of drafts & invoices of the 2nd beneficiary by those of the 1st BENE, payment is usually restricted to the transferring bank. Transferring Banks that would like to take the risk as stipulate in point five (5) would rather issue a back-to-back credit rather than go to such hassle.
regards
[edited 3/19/02 10:58:53 AM]
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Abdulkader,
I’m grateful for this.
I take it from your 2nd para (‘When we transfer ……’) you never change the place of pay’t of the transfer (see below).
Re your point 2, if a Transferring Bank agrees “that payment or negotiation be effected to the Second Beneficiary(ies) at the place to which the Credit has been transferred”, I cannot see how there cannot be a ‘new’ nominated bank for the transfer, i.e. a ‘Transfer Nominated Bank’ (freely negotiable credits excepted). To me this is a pre-condition to (what is effectively) changing the place of pay’t. In other words, in the absence of a Transfer Nominated Bank “payment or negotiation ……. to the Second Beneficiary(ies) at the place to which the Credit has been transferred” cannot take place.
Re your point 3, I believe the advantage of ‘proposition’ 5 over a back-to-back credit is:
A. The risk on the ‘middleman’ is (at most) only for interest and not principal (i.e. the ‘second’ or ‘outward’ credit’s value).
B. One is not dependent on the middleman making a complying substitution in order to have a right of reimbursement against the (‘first’) issuing bank.
Regards, Jeremy
P.S. Comments from others would be gratefully received.
[edited 3/19/02 12:54:35 PM]
I’m grateful for this.
I take it from your 2nd para (‘When we transfer ……’) you never change the place of pay’t of the transfer (see below).
Re your point 2, if a Transferring Bank agrees “that payment or negotiation be effected to the Second Beneficiary(ies) at the place to which the Credit has been transferred”, I cannot see how there cannot be a ‘new’ nominated bank for the transfer, i.e. a ‘Transfer Nominated Bank’ (freely negotiable credits excepted). To me this is a pre-condition to (what is effectively) changing the place of pay’t. In other words, in the absence of a Transfer Nominated Bank “payment or negotiation ……. to the Second Beneficiary(ies) at the place to which the Credit has been transferred” cannot take place.
Re your point 3, I believe the advantage of ‘proposition’ 5 over a back-to-back credit is:
A. The risk on the ‘middleman’ is (at most) only for interest and not principal (i.e. the ‘second’ or ‘outward’ credit’s value).
B. One is not dependent on the middleman making a complying substitution in order to have a right of reimbursement against the (‘first’) issuing bank.
Regards, Jeremy
P.S. Comments from others would be gratefully received.
[edited 3/19/02 12:54:35 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
TRANSFERABLE CREDITS: SUB-ARTICLE 54j
Dear Jeremy
As for your remarks please note the following:
1. Point 1 is misinterpretation of the sub article. I believe that the sub article refers to payment and negotiation as a process rather than as a mode of payment as referred to in article 9. Therefore if there is a change in the place of availability then this could also apply to deferred payment and acceptance credits provided that negotiation is not restricted to a certain bank.
2. As for the reimbursement arrangements some bank adopt a more conservative approach especially if the transferred credit is not confirmed and the negotiation is restricted to the transferring bank in the original credit.
In that case some banks avoid revealing reimbursement instruction to the second beneficiary as far as possible. The reason being that the credit is restricted for negotiation to the advising/ nominated bank (transferring bank) and not available with the third bank (transfer bank)
The reimbursement clause reads as follows “upon receipt of documents in accordance with the terms and conditions of this L/C we shall be pleased to give them our attention”. Alternatively other banks state “on receipt of documents in strict conformity with the credit terms and conditions, we will pay you after receipt of funds from the paying bank”
3. Any L/C, whatever can be its mode of realisation, may include a clause that is transferable. It is to be noted that the nominated bank has the right to refuse to execute such request from the beneficiary to transfer the credit. Article 48 (a) clearly states that the first beneficiary “may request” and therefore shifts the discretion of allowing such transfer to be effected despite the fact that the original credits qualifies itself as transferable.
4. Special attention should be drawn to freely negotiable L/Cs. In case these credits are transferable, a further indication of the name of the bank, place of presentation, reimbursement arrangement should be considered by the issuer. Under such credits, the advising / nominated bank is not, therefore automatically the future transferring bank.
5. In principle the advising / nominated bank whether a credit has been confirmed or not, may categorically refuse to comply with the application for transfer presented by the first beneficiary. Although, such refusal may not arise, unless a legitimate reason exists.
6. A confirming bank under transferable credit is not authorized to increase the initial commitment of the issuing bank by authorizing another bank to add its confirmation to the credit transferred. If the transferring nominated bank has confirmed the credit them his obligation towards the second beneficiary can be either confirmed or unconfirmed, depending on the stipulation in the advice of transfer to the second beneficiary.
7. If the confirmation of the transferred credit is a contingent condition imposed by the second beneficiary, the issuing bank has to consider his particular position pf this matter. The issuing bank, in case the credit is confirmed, will be:
- Directly responsible for the confirmation added by the nominated bank on the transferable credit and,
- Indirectly responsible for the confirmation added by the advising/nominated on the transferable credit.
If the issuing bank is willing to take such risks, the advising/nominated bank may request for a statement from the issuing bank. The issuing bank on behalf and upon instructions of the applicant may add the following statement:
“If requested by the first beneficiary, you may accept his instructions for having the transferred credit advised to the second beneficiary(ies) with adding the confirmation of the advising/nominated bank of the transfer. We endorse all liabilities and responsibilities arising out from such third bank confirmation on the transferred credit and accept to hold you harmless from any and all consequences arising out of such third bank confirmation on the transferred credit and undertakes to indemnify your bank and reimburse you from such a request.”
I hope these points well help you in your process.
regards
As for your remarks please note the following:
1. Point 1 is misinterpretation of the sub article. I believe that the sub article refers to payment and negotiation as a process rather than as a mode of payment as referred to in article 9. Therefore if there is a change in the place of availability then this could also apply to deferred payment and acceptance credits provided that negotiation is not restricted to a certain bank.
2. As for the reimbursement arrangements some bank adopt a more conservative approach especially if the transferred credit is not confirmed and the negotiation is restricted to the transferring bank in the original credit.
In that case some banks avoid revealing reimbursement instruction to the second beneficiary as far as possible. The reason being that the credit is restricted for negotiation to the advising/ nominated bank (transferring bank) and not available with the third bank (transfer bank)
The reimbursement clause reads as follows “upon receipt of documents in accordance with the terms and conditions of this L/C we shall be pleased to give them our attention”. Alternatively other banks state “on receipt of documents in strict conformity with the credit terms and conditions, we will pay you after receipt of funds from the paying bank”
3. Any L/C, whatever can be its mode of realisation, may include a clause that is transferable. It is to be noted that the nominated bank has the right to refuse to execute such request from the beneficiary to transfer the credit. Article 48 (a) clearly states that the first beneficiary “may request” and therefore shifts the discretion of allowing such transfer to be effected despite the fact that the original credits qualifies itself as transferable.
4. Special attention should be drawn to freely negotiable L/Cs. In case these credits are transferable, a further indication of the name of the bank, place of presentation, reimbursement arrangement should be considered by the issuer. Under such credits, the advising / nominated bank is not, therefore automatically the future transferring bank.
5. In principle the advising / nominated bank whether a credit has been confirmed or not, may categorically refuse to comply with the application for transfer presented by the first beneficiary. Although, such refusal may not arise, unless a legitimate reason exists.
6. A confirming bank under transferable credit is not authorized to increase the initial commitment of the issuing bank by authorizing another bank to add its confirmation to the credit transferred. If the transferring nominated bank has confirmed the credit them his obligation towards the second beneficiary can be either confirmed or unconfirmed, depending on the stipulation in the advice of transfer to the second beneficiary.
7. If the confirmation of the transferred credit is a contingent condition imposed by the second beneficiary, the issuing bank has to consider his particular position pf this matter. The issuing bank, in case the credit is confirmed, will be:
- Directly responsible for the confirmation added by the nominated bank on the transferable credit and,
- Indirectly responsible for the confirmation added by the advising/nominated on the transferable credit.
If the issuing bank is willing to take such risks, the advising/nominated bank may request for a statement from the issuing bank. The issuing bank on behalf and upon instructions of the applicant may add the following statement:
“If requested by the first beneficiary, you may accept his instructions for having the transferred credit advised to the second beneficiary(ies) with adding the confirmation of the advising/nominated bank of the transfer. We endorse all liabilities and responsibilities arising out from such third bank confirmation on the transferred credit and accept to hold you harmless from any and all consequences arising out of such third bank confirmation on the transferred credit and undertakes to indemnify your bank and reimburse you from such a request.”
I hope these points well help you in your process.
regards