Bills Purchased/Discounted under Letter of Credit
In cases where the bills discounting/purchasing/negotiating bank and LC issuing bank are different entities, bills purchased/ discounted/ negotiated under L/C (where payment to the beneficiary is not “under reserve”) is to be treated as an exposure on L/C issuing bank and not on borrower. In the case of negotiations “under reserve”, the exposure will be treated as an exposure on the borrower. However, in cases where the bills discounting/purchasing/ negotiating bank and LC issuing bank are part of the same bank, i.e. where LC is issued by the Head Office or branch of the same bank, then the exposure should be taken on the third party/borrower and not on the LC issuing bank.