International Banking Practice versus International Banking Practice

Last week I had the privilege of discussing the new ISBP with banks trade finance departments. This is always a great and fun experience. I do not have the right words to express my total and utterly respect for those LC officers that are in the front line – helping the buyers and sellers making their transaction work out smoothly. It is indeed a balancing act … telling people they are making mistakes – that they need to change what they have done – in a way they have the feeling that they are in fact being helped.


What always strikes me is how easy it is for me to give the “right” answer – with UCP 600 in one hand and ISBP 745 in the other; and how hard it is to give the “right” answer with all of the LC rules and practices in one hand, the customer and the banks relationship with that customer in the other hand, the banks procedures (including compliance, AML ect.) in the third hand and the banks relationship with the bank in the other end in the fourth hand … it is few people that have 4 hands …


Still it seems to me that the LC officers manage this balance well. This blog post offers a few examples of how International Banking Practice as per ISBP 745 works together with International Banking Practice as per the LC department in real life … and how it need not conflict ….


Take for example paragraph ISBP A26 that reads:



When a credit contains a condition without stipulating a document to indicate compliance therewith (“non-documentary condition”), compliance with such condition need not be evidenced on any stipulated document. However, data contained in a stipulated document are not to be in conflict with the non- documentary condition. For example, when a credit indicates “packing in wooden cases” without indicating that such data is to appear on any stipulated document, a statement in any stipulated document indicating a different type of packing is considered to be a conflict of data.



Here I focus on the first part of the paragraph i.e.: “such condition need not be evidenced on any stipulated document.” This means that a non-documentary condition may be disregarded i.e. not stated in any of the presented documents. So my starting point would be not to state it at all. However the LC officer knows that since it is stated in the LC, it is most likely that buyer really would like the documents to reflect this condition. Therefore a number of LC officers advice their customer to make sure that the condition is reflected in the document most relevant for the condition. Not stating the condition in document may actually cause problems. The issuing bank may (wrongly) refuse the presentation because the condition is not stated. Of course such refusal is “wrong” – but it does not change the fact that the refusal is made, and a “trouble shooting exercise” must begin.


The tricky part is that once the condition is stated in any of the presented documents it will be compared against the LC requirement and the other documents.


Another example down the same alley is where the LC calls for all documents to mention the LC number. It is a given fact that the presentation cannot be refused for that reason. However in many cases it may well make good sense adding it. It may mean that many problems are avoided.


The third example I will mention here is ISBP 745 paragraph A40 that reads:



Documents required by a credit are to be presented as separate documents. However, and as an example, a requirement for an original packing list and an original weight list will also be satisfied by the presentation of two original combined packing and weight lists, provided that such documents state both packing and weight details.



It is allowed to combine documents – as long as it is done in accordance with the paragraph. And in some cases it may be a really good advice; e.g. when the LC calls for 5 x “beneficiary certificates.” There may however also be cases where combining documents causes so many problems that the time saved in combining the documents is used tenfold afterwards doing troubleshooting.


The point I am making – is that when the LC officer is advising the customer about LC practice – then the best advice may NOT be simply to inform what the ISBP 745 says; it must be “adjusted” to the specific case, customer, market etc. Many factors need to be taken into account – and a straight line must be walked.


So am I promoting a “local” practice? No no no … of course not! I see it so that the ISBP 745 offers a framework for what a presentation can be refused on – and what it cannot be refused on. So the ISBP 745 is crucial – and really practical when discussing a refusal with the issuing bank. But even though something is “allowed” according to the ISBP 745 – it may be that the best advice may be NOT to do it!


Always remember that it is better to get the money than be proven right!


Take care of each other and the LC!


Best regards



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