CHAPTER 16 - PARTIES TO DOCUMENTARY CREDIT

Applicant

·         The Person who makes the application to the bank for opening the letter of credit.

·         Normally the importer / buyer of the goods or his agent.

Beneficiary

·         Person in whose favour the letter of credit has been established.

·         Normally the exporter / seller of the goods.

Issuing Bank ( Opening Bank )

·         Bank which establishes (opens / issues) the letter of credit. So also known as Opening Bank.

·         Normally the buyer’s / importer's bank.

·         Normally based in the country of residence of the importer.

Advising Bank

·         Bank which advises the letter of credit to the beneficiary.

·         Normally the bank located in the country of the beneficiary (exporter).

·         Validate the genuineness (authenticity) of the LC before advising the same to the beneficiary.

Advice Through Bank:

·         If different from the Receiver, through which the documentary credit is to be advised to the beneficiary.

An L/C is Advised Through the Second Advising Bank in the following cases:

·         If the issuing bank does not maintain correspondent relationship or test key/swift arrangement (BKE - Bilateral Key Exchange) with the beneficiary’s bank. Therefore, it has to issue the L/C to the bank with which it has relationship and instructs this bank to advise the L/C through the beneficiary’s bank. This instruction, if any, can be found in MT 700 Field 57a (Advise Through Bank).

·         The beneficiary is located far from the advising bank and/or does not maintain any banking relationship with the advising bank, therefore, the advising bank may utilize the service  of  another bank (the second advising bank) to advise the L/C to the beneficiary (Article 9 (c) UCP 600).

Nominated Bank

·         A bank which is nominated by the Issuing Bank in the letter of credit for advising the credit and for receiving documents for payment, acceptance or negotiation.

·         Usually the Beneficiary will inform the Applicant during the Contract to include his bank as a Advising Bank and Negotiating (Nominated) Bank in Issuance of Letter of Credit, If no Bank has been nominated or Requested by the Beneficiary to be Included in the LC, then the Issuing bank will Nominate a Bank for Advising and Negotiation, to whom the Issuing bank maintains a good relationship.

·         So when a specific bank is indicated or Nominated in the LC, then the credit is restricted to that particular bank and is known as Restricted Letter of Credit.

Confirming Bank

·         Is the bank which adds its confirmation to the letter of credit at the Instruction of the issuing bank (adding of Confirming Bank in LC is usually requested by the Beneficiary to the applicant during their Contract, since he is the party ultimately getting Benefited).

·         Is normally a bank located in the country of the residence of the beneficiary (exporter).

·         Provides additional comfort to the beneficiary regarding payment.

Negotiating Bank

·         It is the bank which is authorized to negotiate documents presented by the beneficiary.

·         If no specific bank is nominated in the letter of credit, any bank can negotiate documents (unrestricted LC).

·         In case a specific bank is nominated in the letter of credit as the negotiating bank, only that bank is authorized to negotiate the documents (Restricted LC - Nominated Bank).

·         When the Negotiating bank forwards (Courier) the Documents to the Issuing Bank, now the Negotiating Bank is seen as the Presenting Bank in the view of Issuing Bank.

·         Normally is located in the country of residence of the beneficiary.