Advising Bank

On this article you can find the definition of an advising bank, its roles and responsibilities in a typical letter of credit transaction.

Advising Bank is the bank that advises the letter of credit to the beneficiary. Advising banks act upon the request of issuing banks.

Generally, advising banks are located in the same country as beneficiaries. That is why issuing banks need their services.

Letters of credit are transmitted between banks via an online platform called Swift.

Swift platform is secure and fast, but it is expensive. That is why most of the exporters and importers do not have an access to the Swift platform.

In today's international trade world, letters of credit are transmitted from issuing bank to the advising bank via swift platform and afterwards advising banks advises the credits to the beneficiaries other means of telecommunication such as email attachments of .tif or .html files.

advising bank, its roles and responsibilities

Important Note: You should keep in mind that swift is an authenticated teletransmission platform. A letter of credit or amendment transmitted via swift is deemed to be the operative, and any subsequent mail confirmation is not needed and shall be disregarded.


The Role of the Advising Bank:

According to current letter of credit rules, advising bank means the bank that advises the credit at the request of the issuing bank.

letter of credit advising process
Letter of Credit Advising Process
A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.

Advising bank has no payment responsibility against the beneficiary.

Who Chooses the Advising Bank:

Issuing banks choose advising banks. The advising bank may or may not be the one that is requested by the exporter and/or importer.

Banks in different countries establish correspondent bank relationships.

A correspondent bank is a financial institution that provides services on behalf of another mostly in another country. Correspondent bank facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of another bank.

In letter of credit transactions, generally, correspondents banks are selected as advising banks by issuing banks.

Second Advising Bank : Why It is Needed and What Its Purpose?

In some cases, the advising bank which is chosen by the issuing bank is different than the one requested by the exporter and/or importer. In these cases, issuing bank may add another advising bank's name to the letter of credit.

Second advising bank
Second Advising Bank
Second advising bank can only functions its role, if the first advising bank agrees to transfer the letter of credit to the second advising bank. Which means that advising bank's letter of credit transfer fees must be paid.

Important Note: Please do not confuse second advising bank usage with transferable letters of credit.

Second advising bank is a valuable tool for exporters, especially when the letter of credit is issued in freely negotiable form.
Responsibilities of the Advising Bank:

As per UCP 600, an advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.

By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent
authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the
credit or amendment received.

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