In case of foreign letter of credit, can confirming bank be in a different country say in USA, whereas negotiating bank and beneficiary of lc are from Europe.
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Letter of credit..negotiating and confirming bank
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| Both play different roles in an LC transaction under UCP 600 (Uniform Customs and Practice for Documentary Credits): 1. Negotiating Bank: - The bank that examines the documents presented by the beneficiary (exporter) and, if documents are in order, pays the beneficiary (advances funds) against the LC. - It may or may not be a nominated bank under the LC. - A negotiating bank 'negotiates' (purchases) the draft/documents from the beneficiary and then claims reimbursement from the issuing bank. - Risk: If the issuing bank refuses to pay (due to document discrepancy), the negotiating bank can claim back the funds from the beneficiary (with recourse), unless it is a 'without recourse' negotiation. 2. Confirming Bank: - A bank (usually in the exporter's country) that adds its 'confirmation' to the LC, meaning it gives an independent undertaking to pay the beneficiary if documents are presented correctly — regardless of whether the issuing bank pays or defaults. - This eliminates the risk of issuing bank (and issuing country) for the exporter. - A confirmed LC is irrevocable and much safer for the exporter. - The confirming bank charges a 'confirmation charge/commission' for bearing this risk. 3. Same Bank? The same bank can act as both negotiating and confirming bank — especially in confirmed LCs where the confirming bank also negotiates documents. 4. Key Difference: Confirming bank bears the issuing bank's default risk. Negotiating bank may have recourse to exporter. |
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