ICC Digital Library Forum

COULD YOU PLEASE CONFIRM IF THE LOCAL BRANCH OF THE ISSUING BANK HAS THE RIGHT TO ADVISE AND CONFIRM L/C WHICH ISSUED BY ITS BRANCH IN THE SAME COUNTRY ,TAKING INTO CONSIDERATION ARTICLE 2 OF UCP500.

The issuing bank when establishing a letter of credit whether through its branch in eastern province, western province, in a city called X or in city Y, binds itself irrevocably towards the beneficiary in honoring his complying documents surrendered under the L/C. Article 2 considers the branches of the issuing banks out side the country where the issuing bank is located because these branches are legally different entities from the issuing banks they have different financial status and legal status as well., it might have a different financial standing also.

Therefore I think that the local branch cannot confirm the letter of credit issued by its bank (head office for example or another branch) however it can advise the letter of credit to the beneficiary as an advise through branch but not as a nominated (branch) bank, meaning that the L/C can be routed through another branch to the beneficiary in the same country.

Imagine if the beneficiary upon receiving a letter of credit directly from an issuing banks request that bank to confirm the credit is this acceptable? Imagine if the beneficiary request the nominated bank which is not a confirming bank to request the issuing bank to confirm the L/C, is this possible? if the issuing bank -branch failed to meet its obligation under the L/C do we sue the branch or the bank as an entity?

It is in the interest of the beneficiary to get his L/C through another bank if he really considers the issue of confirmation. First of all there is a conflict of interest in requesting the branch to confirm the L/C issued by its bank. Will it not authenticate the correctness of the L/C, will it advice the beneficiary that the financial standing of the bank is not satisfactory?

if the branch is in another country other than the country in which the issuing bank is located then the L/C can be advised and confirmed by that branch.

[edited 8/24/01 6:25:59 PM]

As a consultant, after many years of practice, we are finally convinced that anything may happen these days!

We have seen beneficiaries having local branches (in the same country, though not in the same city) of the same banks to add confirmation to the same DCs. We told them they are buying no value for their money.

DON'T ASK BRANCHES TO CONFIRM

It is only worth the money and the while to have ANOTHER DIFFERENT bank to add confirmaton to the DC, INCLUDING SILENT CONFIRMATION, if you occasionally cannot get official confirmation in the market from the conservative banks, as in China trade in Hong Kong.

That confirming bank should have as many differences as possible with the issuing bank, such as in terms of jurisdiction, incorporation, organisation, customer base, asset base, style, market sector, etc in order to spread the risks broadly.

If both the issuing bank and the confirming bank for a DC advised in August 2001 are from a country famous for beef (to pay respect to her we do not wish to give her name here), then you may sing one of the theme songs of Tim Rice and Andrew Lloyd Webber: "Don't buy for me an umbrella! (with holes)!" sung originally by his wife Sarah Brightman.

DON'T ASK ACCEPTING BANK TO CONFIRM

Another example often dealt with in our workshops is - Don't ask an accepting bank to cofirm the DC. As a drawee bank, it has already a definite payment undertaking under drafts accepted by it (from BOC Act 1882), whether the DC being confirmed or not but banks are very glad to have extra income from stupid (sorry for this) customers without any additonal risks.

HOW ABOUT NEGOTIATING BANK?

For a negotiating bank, you may ask for its undertaking to negotiate instead of confirmation to save costs and to get "almost" (other than "recourse" etc.) the same result.

BANKERS UNDER STRESS

We asked the banker why he did it and he replied frankly: "If we don't do it, our neighbour across the street would do it anyway! You consultants of course can say this and that but we have a profit target to meet or we may lose our job!" In banks from (we do not wish to name the city), even the receptionist has a quota to sell credit cards.

We are from http://www.tolee.com

[edited 11/4/02 7:06:23 PM]