After this is ascertained, it is checked whether the applicant has a LC facility and whether he has sufficient balance available for the credit to be issued.

If Edwin Lui has a facility with Loo Loo Bank for the issuance of 180 day LCs for $ US $ 2 million, Loo Loo Bank will not, without having the credit facilities extended properly amended and approved, issue a credit for $ 2.5 million or for 210 days.

If these are alright, the application is normally forwarded to the Banks' LC department or its Trade Finance department where it is assigned a number. At the LC the application is scrutinised with special reference to:

Completeness - whether all the required and necessary information is stated; Clarity - whether the language is clear and precise; Consistency - whether any terms contradict each other and Legality - whether any requirement inthe application contravenes a regulation or a law.

If the review uncovers a problem or if further information is required, the applicant is contacted and clarification is sought. Once all the problems are clarified, the Bank prepares the LC.

Once the LC is prepared it is once again checked with the application and if everything is in order the LC is signed by those authorised to do so. It is now ready to be sent out.

Issuance of a LC: Once the LC is prepared and signed it is not usually handed over to the credit opener or buyer to send to the seller. This is for several reasons:

The seller would need an assurance that the credit is genuine; The buyer may not know to whom it is to be sent or how it is to be sent; It is necessary to involve banks to ensure payment and smooth flow of documents.

The issuing bank therefore forwards the credit to a branch in the country wherein the seller (beneficiary) resides or to a bank with which it has a correspondent relationship to forward it to thebeneficiary with the specific request of either: advising the credit or confirming the creditThis may be by telex or by letter. If by telex, it is usually sent with a test code. The test code is an unique number that can be deciphered only by the sender and the recipient and is arrived at by taking into account all or a combination of the currency, the amount, the date, the issuing banks' unique number, the advising banks' unique number, the number of the credit and the number of the message.

Availability of Issuing bank: Article 9 of UCP 500 clearly details the liability of issuing banks. It states "an irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or issuing bank and that the terms and conditions of the credit are complied with:

(i) If the credit provides for sight payment to pay at sight.

(ii) If the credit provides for deferred payment to pay on the maturity date(s) determinable inaccordance with the stipulations of the credit.

(iii) If the credit provides for acceptance (a) by the issuing bank - to accept draft(s) drawn by the beneficiary on the issuing bank and pay them at maturity or (b) by another drawee bank to accept and pay at maturity draft(s) drawn by the beneficiary on the issuing bank in the event the drawee bank stipulated in the credit does not accept draft(s) drawn on it, or to pay such drafts accepted but not paid by such drawee at maturity.

(iv) If the credit provides for negotiation to pay without recourse to drawers and/or bonafide holders, draft(s) drawn by the beneficiary and/or document(s) presented under the credit. A credit should not be issued available by draft(s) on the applicant. If the credit still calls for draft(s) on the applicant, banks will consider such draft(s) as an additional document(s).