A little-known but growing event takes place every month in Dubai in the UAE. Trade Finance Group started as an informal gathering of a small group of trade finance bankers in Dubai in the early 1990s. The objective was to have a forum where they could meet regularly for informal consultations and to exchange industry news and happenings.

Dubai being a major trade finance centre naturally attracted a large number of trade finance specialists from around the Middle East and the Indian Subcontinent. What started as a small group has now grown to be a significant and large gathering. The monthly meetings are hosted by different banks on a rotation basis.

The group comprises almost all the local and foreign banks active in trade finance in Dubai, including HSBC, Standard Chartered, ABN AMRO, Barclays, BNP Paribas, Calyon, Arab Bank, Emirates Bank International, Mashreq Bank, Commercial Bank of Dubai, Abu Dhabi Commercial Bank (ADCB), National Bank of Dubai, National Bank of Fujairah (NBF), National Bank of Umm Al Quwain, United Arab Bank, Habib Bank AG Zurich, Invest Bank, Dubai Islamic Bank, Sharjah Islamic Bank, RAK Bank, and National Bank of Abu Dhabi.

The April 2007 meeting was hosted by NBF at the Admiral Plaza Hotel. RS Rangan, head of trade services at NBF welcomed the gathering and reviewed the minutes of the previous meeting.

The group then discussed a few issues relating to documentary credits and UCP 600:

  •  A bill of lading (BL) is not consigned to a bank but the customer wants a shipping guarantee to be issued by the bank.

The group view was that banks do issue shipping guarantees for missing BLs even though they are not a party to the contract. This is mainly for valued customers as a value-add.

  • Can an issuing bank cancel a letter of credit (LC) after issuing but before the LC is advised to the beneficiary

It was queried whether the issuing bank could cancel an LC not yet advised to the beneficiary, which remained at the counters of the advising bank pending authentication of the instrument. Members believed that an irrevocable LC gets issued no sooner it leaves the issuing bank and could be cancelled only with the consent of all the parties. There had not been any change to the rules between UCP 500 and UCP 600 in this regard.

  •  A confirming bank stipulates that documents are to be routed through them but the presenting bank chooses to forward documents directly to the issuing bank.

It was advised that when a confirmation is added with a specific statement by the confirming bank that documents should be presented to them, the documents should be forwarded as required. In all cases it was suggested to be guided by the LC and/or the terms of confirmation as indicated by the confirming bank.

Zahoor Dattu, head of corporate and trade services at ADCB then initiated discussion on some UCP 600-related issues:

  • Advising bank responsibility

Under UCP 600 additional responsibility has been placed on the advising bank whilst advising the LC (UCP 600 article 9b refers) not only to ensure the authenticity of the LC, but also ensuring that the advice accurately reflects the terms and conditions of the LC.

It was suggested that LCs held for clarification from the issuing bank may be advised to the beneficiary by sending a copy of the LC informing them of the status in clear terms as this would facilitate the beneficiary to take action where required.

A bank had queried a situation where an advising party refused to advise amendment of an LC which it previously advised. In such cases the issuing bank might choose to advise through another advising bank as it may not be considered contravening UCP. In such a case it would be a good practice by an issuing bank to forward copies of the LC and all amendments to the second advising bank along with the amendment.

  • Discounting deferred payment LCs

Under UCP 600 the issuing bank has a two-way obligation, one towards the beneficiary and another towards the nominated bank who had discounted/prepaid the deferred payment obligation. Banks should endeavour to educate their customers of such risks in deferred payment credits.