Interest Claim

[HARIFAK]

A LC is available by payment with the bank. There is no reimbursement provided, If there is no reimbursement instruction in the credit, can the bank charge interest till it receives fund from the issuing bank?

[Jackie]

If l/c is available by payment without reimbursement no interest may be claimed.

Thanks Jackie

[Negotiator]

Hi, all

In my view, the answer to HARIFAK's question would be "Yes".

First of all, please let me quote a part of ICC Official Opinion R398 :

"A payment credit is one which requires the bill of exchange to be drawn on the nominated bank with immediate reimbursement for any payment(s) made being authorized in the credit.
...
If the beneficiary requires that settlement for his documents be effected in his own country, he will request that the credit be made available by payment, thereby ensuring that any settlement is made without deduction of interest."

I wonder a little bit if the above opinion is sufficient to support my view, however, I believe that if an issuing bank opens a credit which is available with another nominated bank by payment, it intends to allow beneficiary to receive payments under it from that nominated bank without deduction of interest. (unless the issuing bank misunderstands the purpose of "by payment" credit)

I think this is the reason why the "by payment" credits are recommended to allow reimbursement from a third-bank. In this way, the nominated bank may provide payment under the credit immediately as it determines that the presentation is complying, without any deduction of interest on its or beneficiary's part.

Nevertheless, if a "by payment" credit does not contain any reimbursement instruction, the nominated bank may send beneficiary's docs to the issuing bank without prepaying to the beneficiary. Then the beneficiary will lose its opportunity to get immediate payments as the credit stipulated, so it would be reasonable for the beneficiary to recover its interest from the party caused the problem - i.e, the issuing bank.
If the nominated bank prepaid to the beneficiary before reimbursement from issuing bank, interest would be incurred on the part of nominated bank but the beneficiary is not obliged to compensate it because the beneficiary is entitled to receive proceeds without deduction. Then the interest should be covered by the issuing bank as aforesaid reason.

To be honest, even banks in my country are handling "by payment" credits wrongfully. However, I hope all the DC specialists try to understand "by payment" credit properly.

Many thanks for good question and opinion.
Regards.

[akomolpa]

There are no guidelines in the UCP with regard to claiming interest, this is left to each bank to determine. If it is a large value transaction, it may be worth pursuing and ascertaining when the examination was actually made and reminding the issuing bank that the obligation under article 15 (to honour) is effective as of the time they conclude the examination.

akomolpa

[shahriar]

in my opinion, the nominated bank can charge interest. after all its issuing bank undertaking and why would nominated bank pay out of its own pocket. here is a case study from UCP400. the concept is still valid i think

A credit was available by sight draft on the confirming bank. In reimbursement, the confirming bank was to draw on a reimbursing bank value three working days from the date of its telex reimbursement advice to the issuing bank.

The misunderstanding has occurred because the credit calls for a sight draft on the confirming bank but shows that the confirming bank is to pay out of its own pocket and will only be reimbursed three days later.

Therefore, strictly speaking, the confirming bank could pay at sight less three days' interest, or alternatively it could defer payment for three days, which it apparently did.

UCP cannot legislate for this kind of case. If it did, that would require a book several feet thick.