There are seven parties to a LOC Agreement. Study each of them thoroughly to know who are doing what.
Applicant is the buyer of the goods or services supplied by the seller. Letter of credit is opened by the issuing bank as per applicant’s request. However, applicant does not belong one of the parties to a letter of credit transaction. This is because of the fact that letters of credit are separate transactions from the sale or other contract on which they may be based.
Beneficiary is the seller of the goods or the provider of the services in a standard commercial letter of credit transaction. Letter of credit is opened by the issuing bank in favour of the beneficiary.
Issuing Bank is the bank that issues a letter of credit at the request of an applicant or its own behalf. Issuing bank undertakes to honour a complying presentation of the beneficiary without recourse.
Nominated bank is the bank with which the credit is available or any bank in the case of a credit available with any bank.
Advising bank is the bank that advises the credit at the request of the issuing bank. An advising bank that is not a confirming bank advises the credit and any amendment without any obligation to honour.
Confirming bank is the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request. Confirming bank may or may not add its confirmation to a letter of credit. This decision is up to confirming bank only. However, once it adds its confirmation to the credit confirming is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit. Even if the issuing bank fails to honour, confirming bank must pay to the beneficiary.
Reimbursing Bank shall mean the bank instructed and/or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.
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