What Happens if Due Date of a Letter of Credit Falls on a Bank Holiday?

Understanding the relationship between due dates and bank holidays under letters of credit transactions.

0
1820

Letter of credit is a conditional payment method. It is only payable if the issuing or confirming bank determines that the presentation is complying.

Once, either the issuing bank or the confirming bank determines that the presentation is complying, the letter of credit amount must be paid to the beneficiary on due date.

But what happens if the due date of an L/C is a non-banking day or bank holiday? On this post I will answer this question.

However, first of all I must define the bank holiday term according to the international letter of credit rules. What is a banking day as per ICC? How a banking day is defined under the International Standard Banking Practices?

UCP 600 defines banking day as follows:

“Banking day means a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed.”

We should understand from the definition of the ICC is that if an issuing bank or confirming bank is open on a day to conduct letter of credit transactions, then that day will be defined as a banking day.

If an issuing bank or confirming bank is not open to conduct letter of credit transactions, then it will be understood as a non-banking day or bank holiday.

According to ISBP 745:

“Payment must be available in immediately available funds on the due date at the place where the draft or documents are payable, provided such due date is a banking day in that place. If the due date is a non-banking day, payment will be due on the first banking day following the due date.”

We understand from ISBP’s definition that if the due date of a letter of credit falls on a bank holiday, then the payment will be made the on the first banking day following the due date.

Case Study : Does a Saturday count as a “banking day”?

If an issuing bank, confirming bank or nominated bank is open on a Saturday to operate, among its other duties, documentary letter of credit transactions, then that half or full day will be classified as one of the “five banking days following the date of receipt of the documents”. As per UCP 600 there is no difference between a full working day or half working day when determining a banking day. If a bank’s letter of credit department is open on Saturday, then it will be deemed to be a banking day.