Nominated Bank

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

Definition: According to current letter of credit rules, UCP 600, nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

Nominated bank has two main functions under a letter of credit transaction.

Firstly, a nominated bank is the presentation point of the documents. As a result, a beneficiary complete its presentation by submitting documents to the counter's of the nominated bank within the time frame indicated in the letter of credit.

Secondly, a nominated bank may act as a discounting bank by purchasing a time draft or documents that have been submitted by the beneficiary and found to be complying by the nominated bank.

Roles and responsibilities of a nominated bank in a letter of credit transaction.
Nominated Bank
After briefly defining what nominated bank is and explaining its functions, now we can look further into different aspects of nominated bank.

Roles and Responsibilities of a Nominated Bank:

Place of Presentation: 

If a nominated bank is defined under a letter of credit, a beneficiary can complete its presentation by submitting required L/C documents to the nominated bank's counters.

This situation gives the beneficiary very valuable time, which is most needed to make a timely complying presentation.

Letter of credit is a conditional payment method. The beneficiary of letter of credit must make a complying presentation, in order to receive the payment.

Beneficiary may receive its payment from the issuing bank, the confirming bank or even from the nominated bank, as it case may be. But the place of presentation is always the nominated bank, if it is defined in the L/C.

Please check below figure for more information.

Place of presentation under letter of credit
Place of presentation - nominated bank

  1. Under a commercial letter of credit, an exporter must submit documents to the nominated bank within 21 days from the date of shipment but not later than the validity period of the letter of credit. 
  2. Once the nominated bank receives the documents from the exporter, nominated bank transmits the documents to the issuing bank and states the date of presentation on its cover schedule.

Place of Presentation Example:

31D Date and Place of Expiry: 30 December 2017 China

50 Applicant: Abubaker And Bros. Co. P.O. Box No. 3542, Alkhobar 31940 Saudi Arabia. 

59 Beneficiary: Zhejiang Plastic Machinery Co., Ltd. Ruian Economic Development Zone Ruian City Zhejiang Province China 

32B Currency Code , Amount: USD #120.000,00#

41A Available With …By …: ABOCCNBJ The Agricultural Bank of China By Payment 

44C Latest Date of Shipment: 10 December 2017

According to above letter of credit terms, the beneficiary must ship the goods before 10.December.2017 (latest date of shipment) and complete the presentation within 21 days after the date of shipment.

As the Agricultural Bank of China is the nominated bank in this letter of credit, the beneficiary can complete its presentation by submitting documents to the Agricultural Bank of China.

Even if the payment comes from the issuing bank, which is located in Saudi Arabia, the place of presentation is the nominated bank counter's.

Nominated Bank as a Discounting Bank: 

Letter of credit rules simply encourage nominated banks to act as a discounting bank, saying "by nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank."

But the same rules also state that "unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary."

In practice, nominated banks generally do not act as a discounting bank. They neither accept time drafts or they buy complying documents of beneficiaries under deferred payment letters of credit, unless they are also confirming bank.