Time draft to be negotiated at sight

[PhanThanhNhan]

Hi all

I would like to have your opinions on the following matter:
* We (advising bank, negotiating bank) receive some LCs from bank A (issuing bank) which indicate:
- F42C: drafts at xx days from B/L date (time draft)
- F42A: Drawee: bank B
- F53A (or D) Reimbursing bank: bank B
- F78:
+ Drafts to be negotiated at sight basis
+ T/T reimbursement allowed or not allowed (depends on each LC)+ all documents to be sent to issuing bank
* Our questions;
- In case these LC do not indicate where to send time drafts for reimbursement, which bank must we send the drafts to, Issuing bank or reimbursing bank ?. Pls note that the drawee is reimbursing bank.
- Will the answer change in case the L/C is subject to both UCP600 and URR 725 and in case the L/C is subject to UCP 600 only?
- Will the answer change in case T/T reimbursement allowed and in case T/T reimbursement not allowed?
- When the documents are discrepant and we just forward the documents to issuing bank for acceptance, how will the drafts be processed by our bank?

We hope to receive our quick response. Thank you very much!

[HOANGTHIANHTHU_invalid]

Dear Nhan,

This type of LC is normally issued by Korean banks. It is called UPAS LC (Usance Paid At sight).

By appearance, it looks like an acceptance credit as it requires time drafts (e.g., 90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis.

While the documents are requested to forward to the issuing bank, drafts under this type of LC are normally (but not always) requested to be sent to the reimbursing bank which shall reimburse the negotiating bank on at sight basis.

It should be understood that there has been a UPAS refinancing arrangement between the issuing bank and the reimbursing bank which is normally a branch of the issuing bank.

Where L/C requests all documents to be sent to the issuing bank, the negotiating bank shall claim reimbursement from the reimbursing bank by a swift message (in the case of T/T reimbursement allowed) or by mail (in the case of T/T reimbursement not allowed).

If the documents presented contain discrepancies, the negotiating bank should ask for the issuing bank's waiver and authorization to claim reimbursement from the reimbursing bank.

Best regards,
N.H. Duc



[edited 10/2/2011 1:12:55 AM]

[PhanThanhNhan]

Thank you for your reply, N.H.Duc

As I understand, there may be a refinancing agreement between the reimbursing bank and issuing bank in these cases. However, subject to URR 725, time drafts must be forwarded to reimbursing bank upon claiming reimbursement.

In fact, some of these LCs clearly instruct that drafts must be sent to reimbursing bank for reimbursement, some state that alll documents and drafts must be sent to the issuing bank. These instructions are clear and easy to follow.

However, some of these LCs do not instruct where shall the negotiating bank forward drafts. It makes some confusions. As I said, if the LC is subject to URR 725, time drafts must be sent to reimbursing bank. However, in fact, when we send drafts to issuing bank, we still can claim reimbursement from the reimbursing bank without drafts and get paid. The reimbursing bank does not request us to forward drafts to them. In some cases, we do not send drafts to issuing bank nor reimbursing bank and we still get paid. But sometimes, when T/T reimbursement is not allowed, we send documents and drafts to issuing bank for their approval. When they authorize us to claim reimbursement from reimbursing bank, they still instruct us to enclose drafts with the claim.

Therefore, we would like to have your opinion and your bank's practice on these cases. We hope to have more ideas from other members. Thanks alot.



[edited 10/2/2011 10:06:18 AM]

[HOANGTHIANHTHU_invalid]

Hi,

It is true that in accordance with URR 725 sub-article 10(b) when a time draft is drawn on the reimbursing bank, the draft must be forwarded to the reimbursing bank together with the reimbursement claim. However, another truth/practice as recognized by you is that the reimbursing bank still pays notwithstanding whether the draft is presented to them or not. As you may know, sometimes drafts, especially sight drafts, play nothing in L/C transactions.

Regards,
N.H. Duc

[PhanThanhNhan]

Dear all

I would like to have more ideas from you. Thank you.

[PhanThanhNhan]

Any ideas from Korean/Japanese banks?