L9 on UCP600 Article 08 April 2018 intake.pdf - UCP600 Article 8 8 Confirming Bank Undertaking a Provided that the stipulated documents are presented to

L9 on UCP600 Article 08 April 2018 intake.pdf - UCP600...

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Unformatted text preview: UCP600 Article 8: 8: Confirming Bank Undertaking a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must: i. honor, if the credit is available by a. sight payment, deferred payment or acceptance with the confirming bank; b. sight payment with another nominated bank and that nominated bank does not pay; 2 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must: i. honor, if the credit is available by c. deferred payment with another nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity; 3 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must: i. honor, if the credit is available by d. acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity; 4 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must: i. honor, if the credit is available by e. negotiation with another nominated bank and that nominated bank does not negotiate. 5 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking a. Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must: ii. negotiate, without recourse, if the credit is available by negotiation with the confirming bank. 6 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking b. A confirming bank is irrevocably bound to honor or negotiate as of the time it adds its confirmation the credit. 7 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking c. A confirming bank undertakes to reimburse another nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank's undertaking to the beneficiary. 8 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 Article 8: 8: Confirming Bank Undertaking d. If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation. 9 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Why Confirmation needed even after getting payment assurance from issuing bank in regards to avoid the credit risk of the ‘Applicant’ ??? Mainly 02 (Two) reasons: 1. Credit risk of the issuing bank which includes i. Poor credit rating report ii. Previous delay settlement iii. Insufficient FC Reserve etc. 2. Country risk of the issuing bank which includes i. Poor country rating or LDC ii. Instable govt. policy iii. Insufficient FC Reserve iv. Frequent Force majeure event viz. war, flood etc. v. Repeated political turmoil etc. CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s undertaking begins………… A confirming bank is irrevocably bound to honor or negotiate ( negotiation subject to specific availability with the confirming bank) as of the time it adds its confirmation to the credit. 11 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s negotiation manner………… negotiate, without recourse, if the credit is available by negotiation with the confirming bank. 12 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Negotiation With Recourse…. What does it mean???? The right of a negotiating bank to claim refund from the beneficiary. 13 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s Undertaking An confirming bank’s two fold irrevocable undertaking through adding confirmation the credit.  To Beneficiary: for Honour  To Nominated Bank: for reimbursement 14 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s Undertaking An confirming bank’s irrevocable undertaking to reimburse the nominated bank depends on the following: 1. Honoured a complying presentation or Negotiated a complying presentation 2. forwarded the documents to the confirming bank 3. Reimbursement under a credit available by acceptance or deferred payment is due at maturity. 15 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s HONOR Confirming Bank MUST Honour under conditions of : o All stipulated documents are presented o Presented to the nominated bank or; Presented to the confirming bank o constitute a complying presentation 16 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming bank’s bindings to HONOR A confirming bank’s irrevocable bindings to honour commences while adds confirmation the credit. (In case of amendment, while advise the amendment) 17 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Confirming Bank’s Undertaking to the nominated bank(s)  An confirming bank undertakes to reimburse a nominated bank that has acted on its nomination.  An confirming bank's undertaking to the nominated bank is independent of the undertaking given to the beneficiary.  Even if the nominated bank has paid in advance under a credit available by acceptance or deferred payment, the confirming bank has no obligation to pay before maturity. 18 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Risks faced by the beneficiary: 1. Documentary Risk : absolutely for beneficiary and not covered by confirmation. 2. Counter Party Risk (Applicant Risk): Covered through issuance of Credit. 3. Credit risk of the issuing bank : Covered by confirmation. 4. Credit risk of the issuing bank country: Covered by confirmation if confirmed by other than issuing bank country 5. Credit issued by nonnon-bank issuer: Covered by confirmation from a bank. 6. Fraud: A risks for all parties including beneficiary and not covered by confirmation. 7. Foreign Exchange Risk: Common risk for both applicant and beneficiary and can be mitigate through ‘Forward Booking’ & not by confirmation. 19 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Silent Confirmation !!! What it is all about? What is the standing of UCP600? 20 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Can a nonnon-bank confirm a credit? YES Can there be more than one confirming bank in a credit? YES 21 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion [R742] Query: When a credit states ‘may add’ regarding confirmation: What does it mean? Answer: ‘Such an instruction(i.e. may add) allows a bank to add its Confirmation upon a request received from the beneficiary. Such a request need not be forthcoming at the time of advising the credit and may occur at any time.’ 22 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion [R520*] Query: How long a confirmation exist? Answer: Where documents are presented to the confirming bank within the validity of their undertaking, and found to be discrepant, and the confirming bank provides a notice of refusal in accordance with the UCP, its undertaking would no longer exist in respect of that presentation (subject to the beneficiary being unable to correct the discrepancies within the credit timelines). 23 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion [R520*] If the documents, on instructions of the beneficiary, are subsequently sent to the issuing bank on an approval basis and the discrepancies are waived, the confirming bank has no obligation to make payment unless it has indicated its willingness to do so at the time of providing its notice of refusal. The presentation of discrepant documents to the confirming bank would end its obligation under the credit unless it has stated otherwise, and the fact that the issuing bank accepts a waiver of discrepancies would not further obligate the confirming bank.’ 24 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R737 [TA742rev] Query: A bank added confirmation as requested by the LC issuing bank. The beneficiary presented documents to the confirming bank. The confirming bank found some discrepancies and sent refusal notice to the presenter. At the request of the beneficiary, the confirming bank forwarded the noncomplying documents to the issuing bank. 25 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R737 [TA742rev] Question01 : Was the confirming bank obligated to honor or negotiate those non-complying documents. ICC answer: No Question02 Question02: 02: The issuing bank later waived the discrepancies and sent the acceptance message to the ‘confirming’ bank. Was the confirming bank obligated to honor or negotiate the documents at this stage? ICC answer: No 26 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R737 [TA742rev] Question03: Can the confirming bank reinstate its confirmation at this stage without further request or authorization from the issuing bank? ICC answer : YES Question04: Can the confirming bank refuse to reinstate its confirmation at this stage even if required by the beneficiary? ICC answer : YES but for that non-complying presentation only. 27 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R737 [TA742rev] Conclusion: Once a nominated bank’s confirmation has lapsed as a result of complying documents not being presented within the validity of the credit, any subsequent agreement by the nominated bank either to reinstate its confirmation or to agree to act as if its confirmation still stands in respect of the presentation, is solely for the nominated bank to decide. It may do so without further reference to, or authorization from, the issuing bank. bank. 28 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ...
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