ICC Digital Library Forum

Bank A in Turkey has issued a L/C in favour of the beneficiary in USA which is available by negotiation at the counters of the confirming bank in USA.

Payment terms of the L/C as follows:

-80pct will be paid on presentation of shipping documents as required under the L/C, to the confirming bank.

-20 pct will be paid upon written instruction of the Applicant to the L/C issuing bank latest 30 days after the acceptance of the material.

Is there any problem for the confirming bank to add its confirmation up to 100 pct of L/C amount.

Shahed

Hello, generally, my response would be yes, there is a problem due to the applicnat controlled nature of the payment of the 20%. A confirmer would want to be able to independently determine its payment obligation to the beneficiary under the letter of credit, from the LC term and conditions themselves, and not have to rely on information provided by an applicant or an agreement between parties outside of the letter of credit. Carrying that concern forward, I am wondering how an issuing bank can get comfortable isusing such a credit, since presumably, an issuer would/should have the same concerns. When I have seen structures like this, it is common to issue the LC for the 80%, payable against presentation of required documents and then the 20% is paid outside the letter of credit or "secured" by the issuance of a SBLC.