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Understanding Article 12 of UCP 600: Nomination

In a letter of credit (LC) transaction, exporters often rely on a bank other than the issuing bank to present documents and receive payment. Article 12 of UCP 600 introduces the concept of nomination — when the issuing bank authorizes another bank (the nominated bank) to act on its behalf for payment, acceptance, or negotiation.

This article clarifies the nominated bank’s rights and limits, ensuring exporters know what support to expect.

What Does Article 12 of UCP 600 Say?

Article 12 sets out the following rules:

  1. Nomination Defined
    • An issuing bank may authorize (nominate) a bank to honor, accept, or negotiate under the LC.
    • The nominated bank is not obligated to act unless it expressly agrees.
  2. Nominated Bank’s Role
    • If the nominated bank chooses to act, it must examine documents presented and forward them to the issuing bank.
    • Its responsibility is limited unless it has added its confirmation.
  3. Exporter’s Choice
    • Even if an LC nominates a bank, the beneficiary (exporter) may still present documents directly to the issuing bank.

Breaking Down Article 12

  1. What Is Nomination?
    • Nomination gives exporters a nearby or convenient bank to deal with instead of sending documents to the issuing bank abroad.
    • It makes the LC process smoother.
  2. Not an Obligation
    • The nominated bank is authorized but not required to honor or negotiate.
    • Its liability only arises if it expressly commits (e.g., by adding confirmation).
  3. Exporter Flexibility
    • Exporters are not tied to the nominated bank.
    • They can present documents directly to the issuing bank if they prefer.
  4. Risk for Exporters
    • If a nominated bank refuses to act, the exporter must deal directly with the issuing bank, which may cause delays.
    • That’s why confirmation is often requested for extra security.

Practical Trade Example

  • An LC issued by a U.S. bank nominates Standard Chartered Bank, Dhaka for negotiation.
  • A Bangladeshi exporter of garments can present documents to Standard Chartered Dhaka instead of sending them directly to the U.S. bank.
  • If Standard Chartered Dhaka accepts and forwards the documents, payment is smoother.
  • However, if the bank does not add confirmation, it is not obligated to pay unless the issuing bank reimburses.

✔ Exporter benefits from local convenience.
✔ But exporter must understand that nomination ≠ guaranteed payment.

Why Article 12 Matters

  • Clarifies the limited role of nominated banks.
  • Gives exporters convenience in handling documents locally.
  • Protects banks by making nomination an option, not a binding obligation.
  • Reinforces the importance of confirmation when exporters want payment certainty.

Final Thoughts

Article 12 of UCP 600 introduces flexibility into LC operations by allowing the use of nominated banks. While this makes trade more efficient, exporters must remember that nomination alone does not equal a payment guarantee. Only when confirmation is added does the nominated bank carry full liability.

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