Article 12, UCP-600-Nomination

A bank that agrees to act on a nomination of an issuing bank to pay, accept, incur a deferred payment undertaking or negotiate will be known as a nominated bank.

Article 2 defines a ‘nominated bank’ as the bank with which the credit is available or any bank in the case if a credit available with any bank. 

A nominated bank is not a party to credit and mostly located in the country of beneficiary; indicated in a credit to help beneficiary in order to get early settlement or a beneficiary may present the documents to nominated bank to avoid delay in presentation if available with nominated  bank, A documentary credit can be made available with the issuing bank only and in that case, there is no need of a nominated bank and the beneficiary will be required to ensure delivery of the stipulated documents to the issuing bank not later than the expiry date and the latest date of presentation.

A named nominated bank usually given in field 41a of a credit which is a mandatory field because that particular field contains tenure as well, a nominated bank may also be an advising bank or could be a confirming bank.

Even though an issuing bank may issue a documentary credit that is available with a named nominated bank or any bank, a nominated bank is under no obligation to honour or negotiate. A bank that has added its confirmation to a documentary credit will be required to honour or negotiate if a complying presentation is made to it or to another nominated bank and that other nominated bank does not honour or negotiate. An issuing bank is liable in terms of its undertaking, to honour at sight or at maturity.

Article 12, UCP-600-Nomination

a. 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.

By nominating a bank (or any bank in case of freely available) in a credit by issuing bank does not impose any obligation on that particular nominated bank to make advance settlement (negotiation) or accept or honour even if a complying presentation is made to it, unless that nominated bank is the confirming bank.

Until, a nominated bank does not expressly communicate to the beneficiary while advising the documentary credit or at any time an agreement is given that they will honour or negotiate, the beneficiary should not rely on the nomination given in the documentary credit.

Below are the variety of several reasons whether the nominated bank accepts its nomination to honour or negotiate:

-Relationship, between nominated bank and issuing bank;

-Credit worthiness and standing of an issuing bank;

-Country of an issuing bank,

-Whether the nominated bank would be able to take funds back from issuing bank/confirming bank or not; upon honour or negotiation.

b. 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.

It indicates that by issuing a documentary credit which is available by deferred payment, acceptance or negotiation by nominated bank, that issuing bank is authorising the nominated bank to incur its deferred payment undertaking, accept a draft drawn on it or to provide early settlement to the beneficiary; if draft drawn on other than it, however, there is no obligation on a nominated bank and its their sole discretion which may depends on the factor discussed above whether to act on their nomination.                     

c. Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.

If a credit is available with nominated bank and documents are presented at the counter of a nominated bank or even if they do the examination of the documents and forward those documents to issuing bank, does not obligate that nominated bank to act on their nomination if no written agreement for the same with the beneficiary to honour or negotiate nor that checking and forwarding of documents will be deemed to be honour or negotiation.

In the event that a bank agrees to act as nominated bank: 

-Examine all documents as per credit terms and UCP600.

-Handle discrepant documents in terms of article 16 and send notice of refusal if needed.

-Upon effecting honour or negotiation, a nominated bank is need to dispatch the documents to the issuing bank (or confirming bank) according to the instructions stated in the documentary credit field 78.

If a nominated bank decides not to honour or negotiate, or the beneficiary does not request the bank to honour or negotiate, the bank acts as a postman to forward the documents to the issuing bank.

A nominated bank may honour or negotiate on with or without recourse basis, in most of the cases a nominated bank will chose to do the same on with recourse basis so in case if they unable to get the settlement from issuing bank, confirming bank; they should be in a position to recall the fund from a beneficiary.