مركز التدريب والتأهيل المصرفي دورة الاعتمادات المستندية وبوالص التحصيل

1. مركز التدريب والتأهيل المصرفيدورة الاعتمادات المستندية وبوالص التحصيل بالتعاون مع السادة: أ. معد الفارس / مدير إدارة التجارة الخارجية – بنك الشام أ. عبد الرحيم الشيخ نعسان / مساعد مدير إدارة التجارة الخارجية – بنك الشام Maad AlFares

2. Documentary Credits MAAD AL FARES Foreign Trade Manager CHAM BANK E-MAIL m.alfares@chambank.com Maad AlFares

3. An undertaking issued by a bank for the account of the buyer (Applicant) or for its own account, to pay the Beneficiary the value of the Draft and/or documents provided that the terms and conditions of the Documentary Credit are complied with. • When used: • When the seller requires cash • When the buyer seeks credit Means of Payment- Documentary Credits Maad AlFares

4. Under a documentary credit operation, there exists a distinct triangular contractual arrangement: • The sales contract between buyer and seller • The “Application and Security Agreement” or the “Reimbursing Agreement” between the buyer (Applicant) and the issuer (the Issuing Bank) • The Documentary Credit between the Issuing Bank and the Beneficiary. If the Documentary Credit is confirmed by another bank, then such bank undertakes its own contractual arrangement in addition to that of the Issuing Bank, to the Beneficiary. Documentary Credits Maad AlFares

5. Parties to a Documentary Credit • The Issuing Bank • The Confirming Bank (if any) • The Beneficiary Other Parties which facilitate the Documentary Credit • The Applicant • The Advising Bank • The Nominated Paying/Negotiating/ Accepting Bank • The Transferring Bank (if any) Documentary Credits Maad AlFares

6. ISSUANCE STEP Maad AlFares

7. SETTLEMENT Maad AlFares

8. Types • Irrevocable Documentary Credit • Revocable Documentary Credit • Uses • Facilitates Financing • Provides Legal Protection • Assures Expert Examination of Documents Types and Uses of Documentary Credits Maad AlFares

9. An irrevocable documentary credit is defined as a definite undertaking given to the beneficiary by the issuing bank to pay, or arrange that payment will be made through an agent (the advising or confirming bank) provided documents are presented in compliance with the credit terms. Irrevocable Documentary Credit Maad AlFares

10. A revocable documentary credit can be amended or cancelled at any time without prior notice to the beneficiary. Such credits can involve the beneficiary in considerable risk. • Cancellation of credit after shipment • Amended in such a way that the beneficiary is unable to comply with the terms • The Issuing Bank is bound to reimburse a bank that has already effected payment against documents appearing to be in accordance with the credit prior to receipt by that bank of notice of amendment or cancellation. Revocable Documentary Credit Maad AlFares

11. Facilitates Financing: • Provides independent credit backing and clear promise of payment • Satisfies the financing needs of seller and buyer by placing the bank’s credit standing at the disposal of both parties • May permit buyer to obtain better pricing and longer payment terms • Reduces or eliminates commercial risk • Reduces certain exchange control and political risks • May not require actual segregation of cash • Expands buyer’s sources of supply Documentary Credits- Benefits Maad AlFares

12. Provides Legal protection: Documentary credits are supported by a wide variety of laws and regulations such as: • Legislative and semi-legislative law • Codified law – in most countries the law for Documentary credits has been codified in the civil or common law of the country concerned. • Decisional law – statutory laws governing documentary credits are found in various jurisdictions. • Contractual/customary law – Documentary credits are usually governed by the ICC Uniform Customs & Practices for Documentary Credits Documentary Credits- Benefits Maad AlFares

13. Assures expert examination of documents: • The buyer is assured that the documents required by the Documentary Credit (if subject to UCP) must be presented in compliance with the terms and conditions of the Documentary Credit and UCP rules • The buyer is assured that the documents presented will be examined by banking personnel knowledgeable in Documentary Credit operations • The buyer is confident that payment will only be made to the seller after the terms and conditions of the Documentary Credit and UCP rules are complied with. Documentary Credits- Benefits Maad AlFares

14. If the Documents do not meet the Documentary Credit Requirements • Types of Settlement • By Payment • By Acceptance • By Negotiation Settlement Maad AlFares

15. Stages to a Documentary Credit “The New Standard Documentary Credit Forms for the UCP 600 which provides a number of recommended Standard Forms and full information about how to complete them. Roles of the Issuing and Advising Banks Maad AlFares

16. UCP 600 DEFINITIONS Maad AlFares

17. Means: • A presentation that is in accordance with the credit, the applicable provisions of these rules and international standard banking practice. Complying presentation Maad Al Fares , Cham Bank , 2018

18. Means: • a. to pay at sight if the credit is available by sight payment. • b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment. • c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is available by acceptance. Honour Maad Al Fares , Cham Bank , 2018

19. Means: • The purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank Negotiation Maad Al Fares , Cham Bank , 2018

20. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honour if the credit is available by: i. sight payment, deferred payment or acceptance with the issuing bank; ii. sight payment with a nominated bank and that nominated bank does not pay; Issuing Bank Undertaking Maad Al Fares , Cham Bank , 2018

21. iii. deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity; iv. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity; v. negotiation with a nominated bank and that nominated bank does not negotiate. Issuing Bank Undertaking Maad Al Fares , Cham Bank , 2018

22. b. An issuing bank is irrevocably bound to honour as of the time it issues the credit. c. An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Issuing Bank Undertaking Maad Al Fares , Cham Bank , 2018

23. International Standard Banking Practice – ISBP 745E - 2013 Maad AlFares

24. International Chamber of Commerce document 745E • Published in July 2013 • Applicable to all documents presented after its publication even those under L/Cs that were issued before July 2013 • Represents how UCP600 rules should be applied to documents presented • Sets out what is international standard practice as referred to in UCP Article 14d ‘data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit’ ISBP

25. A paragraphs = general principals • B paragraphs = drafts and dates • C paragraphs = invoices • D paragraphs = multimodal transport • E paragraphs = bills of lading • F paragraphs = non negotiable seawaybills • G paragraphs = charter party B/Ls • H paragraphs = air transport • J paragraphs = inland waterway, rail and road • K paragraphs = insurance • L paragraphs = certificates of origin • M paragraphs = packing lists • N paragraphs = weight lists • P paragraphs = beneficiary’s certificates • Q paragraphs = analysis, inspection, health certificates etc ISBP arranged in alpha numeric paragraphs

26. Must be read in conjunction with UCP600 • Covers how to interpret UCP600 when checking, document by document • Also gives guidance to be taken into account when issuing your L/C • Be aware of major points but use the paragraph groupings for specific documents ISBP – How to use

27. A2 defines how a ‘/’ (virgule) or a comma mean one or more of the options • A19 c and d ‘third party documents acceptable’ applies to all documents where the L/C or UCP600 do not indicate an issuer. ‘third party documents not acceptable’ has no meaning and must be disregarded ISBP – A paragraphs

28. A19e defines ‘exporting country as the beneficiary’s domicile, or goods origin, or country of receipt or shipment by the carrier? • A19g ‘documents acceptable as presented’ either one or more of the stipulated documents to be presented. They may be copies and will not be checked ISBP – A paragraphs

29. A21 – Language of documents This paragraph does not change the default position of previous ISBP publications, if you do not specify, documents may be presented in any language. Confirming or nominated bank may restrict the number of languages documents can be presented in Even if restricted names, stamps and pre-printed text can still be in any language ISBP – A paragraphs

30. A26 – Non-documentary conditions Another important paragraph, as well as the existing position that documents do not have to comply with a non-documentary condition it also states ‘data in the documents must not conflict with the non-documentary condition. This is contrary to UCP600 Art 14h which states banks will disregards non-documentary conditions ISBP – A paragraphs

31. A27 – Any document bearing an apparent original signature, mark, stamp or label of the issuer is an original, unless marked ‘copy’. • A31b – Copies of documents need not be signed or dated • A35a+b – Signature need not be manual, it can be pre-printed, scanned, stamped or any mechanical or electronic method of authentication • A35c+d – Covers electronic authentication ISBP – A paragraphs

32. B paragraphs cover drafts and maturity calculations. There is nothing new or that needs clarification here • C1 – Provisional or proforma invoices are not acceptable if the L/C calls for an invoice • C2 – If the beneficiary changes name they may use the new name on the invoice provided it states formerly known as (the L/C beneficiary name) or words of similar effect • C15a(ii) – When partial drawings or shipment are allowed in an instalment credit the beneficiary can partial ship within instalments • C15b(i) - When an L/C gives instalment by only the latest date (not including a start date) this is not an instalment L/C as per UCP600 Art32 ISBP – C paragraphs

33. These paragraphs cover the transport documents applicable to shipment by sea and multimodal • D4, E4, F3 – ‘freight forwarders transport document is not acceptable’ has no meaning as the respective UCP600 articles set out the signing requirements for transport documents • D9, E9, F8 and G8 – transport document does not have to state the country of the port of discharge even when this is shown in the L/C • D27 – For multimodal transport documents where a delivery agent is often required the agent’s address does not have to be in the country of final destination or discharge ISBP – D, E, F and G paragraphs

34. Commercial Invoice Maad AlFares

35. H paragraphs cover Air transport documents, Airwaybills, there is nothing new or contentious in these paragraphs • J paragraphs cover Road, Rail and Inland Waterway transport documents. • 7J – A rail transport document does not have to be marked original, a signed or stamped duplicate or carbon copy is considered an original • J20b – ‘franco’ means freight paid and ‘non franco’ means freight collect ISBP – H and J paragraphs

36. K2b – when issuer is shown as ‘insurer’ the insurance document does not need to specify that the issuer is an insurance company or underwriter • K5 – if insurance document indicates it requires a countersignature it must be countersigned • K10c – ‘warehouse to warehouse’ does NOT mean that the insurance is covered when the insurance document is dated after shipment • K12 – insurance must be in currency of the credit • K15 – if invoice value includes deductions or is only part of consignment value insurance must be based on grossed up value of consignment • K16 – may be more than one document indicating amount or percentage of partial cover ISBP – K paragraphs, Insurance

37. L2 – if a specific form of certificate of origin such as GSP Form A is called for it must be presented • L3b – if L/C does not require specific issuer any party may issue • L3c(ii) – if Chamber of Commerce document required, Chamber of Industry, Association of Industry, Customs Authority etc are acceptable • L5 – if transport document is issued ‘to order’ consignee may be any party named in L/C other than the beneficiary • L8 – may show different invoice number, date and shipment routing provided the consignor or exporter is not the beneficiary ISBP – L paragraphs, Certificate of Origin

38. Certificate of Origin Maad AlFares

39. M5 and N5 – packing and weight lists may indicate a different invoice number, shipment date and shipment routing provided they are not issued by the beneficiary • M6 and N6 – banks only check totals (weights, packing units, measurements etc) on packing lists and weight lists to ensure they do not conflict with other documents or the L/C ISBP – M and N paragraphs

40. Packing List Maad AlFares

41. Weight List Maad AlFares

42. P1 – may be untitled provided it fulfils the function by containing the data or certification required by the L/C • P4b – need not include a goods description or any other reference to the L/C or any other stipulated document ISBP – P paragraphs, beneficiary’s certificates

43. These cover analysis, inspection, health, phytosanitary, quality certificates etc • Q2 – where the L/C requires the certificate to cover an action that took place on or prior to shipment ie ‘pre-’ this may be satisfied by the title (i.e. pre-shipment inspection certificate) or the wording in the certificate or by it being dated prior to shipment • Q8 – if L/C does not specify the standard to be achieved the certificate may say ‘not fit for human consumption’ or ‘not as per specification’ etc • Q11 – Analysis, Inspection, Health certificates etc may refer to different invoice number or shipment routing provided the beneficiary is NOT shown as the shipper or consignor ISBP – Q paragraphs

44. Health Certificate Maad AlFares

45. Inspection Certificate Maad AlFares

46. Maad AlFares

47. 1- Applicant, in his application to issue a Letter of Credit, did not mention the name of an Advising Bank. Issuing Bank issued a LC and chose its Correspondent Bank on its own to advise the credit. The Correspondent Bank neither advised the Credit to the beneficiary nor informed the Issuing Bank the LC . Which of the following statement is true? • A) Issuing Bank is responsible • B) Advising Bank is responsible • C) Applicant is responsible • Answer (B) Case Studies on L/Cs Maad AlFares

48. Case Studies on L/Cs Red Bank opened a LC for USD 10,000/- in favor of supplier in Japan for import of 10 M. Tons fish meal. The expiry date of the LC was Sunday,22nd July but no latest date of shipment was stipulated. Red Bank received documents mentioning goods as 10.30 M. Tons fish meal. Red Bank also detected that presentation of documents was made on Monday, 23rd July. Red Bank refused to accept documents stating that documents were discrepant ( goods shipped excess and late presentation). The negotiating bank protested and insisted that documents were presented as per LC terms. What is the position of Red Bank? Maad AlFares

49. Case Studies on L/Cs Answer: A tolerance of 5% more or 5% less than the quantity allowed unless The LC stipulates the quantity of the goods must not exceed or reduced provided that amount of drawings does not exceed the LC amount. When the expiry date of LC or the last day of presentation falls on a non-business day, the documents can be presented on the next business day. There is no scope to reject the documents. Maad AlFares

50. Green Bank opened a LC for USD 100,000/- in favor of supplier in Indonesia for import of cement. Green Bank received the shipping documents and it was detected that the bill of lading is dated five days prior to the date of opening of LC. The applicant refused to accept the documents. Will Green Bank settle the transaction? • Answer : As per Article 14(i) of UCP 600 : Unless otherwise stipulated in the LC, bank will accept a document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation. The applicant cannot refuse to pay. Case Studies on L/Cs Maad AlFares