Advising Bank

Updated on March 19, 2024
Article byKhalid Ahmed
Edited byKhalid Ahmed
Reviewed byDheeraj Vaidya, CFA, FRM

Advising Bank Meaning

Advising bank (notifying bank) refers to a financial institution located in the exporter’s country which notifies the exporter regarding the approval and opening of a letter of credit at the behest of issuing bank of the importer. It allows the exporter to be aware of the terms and conditions of the letter of credit without any commitments to pay the importer.

Advising Bank

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It has become a common gateway for traders to ship goods globally from one country to another easily. Thus, it makes the procedure of international shipping quite simple. Moreover, it signals the exporter of money in waiting that the importer will pay to the exporter upon goods receipt. Exporters generally decide on their notifying banks. 

Key Takeaways

  • An advising bank refers to a notifying bank located in the exporter’s country that informs of the existence of a letter of credit at the end of the importer through its issuing bank.
  • It notifies the exporter about LC opened by the importer and allows safer and smoother international trade ensuring risk-free trade.
  • Issuing bank prepare and issue LC for the importer. It then gets passed to the Notifying bank for notification to the exporter that a confirmation bank has to pay or negotiate the acceptance on the sight of LC.
  • The main purpose of notifying banks has been facilitating safe and profitable overseas trade for the exporter.

Advising Bank Explained

An advising bank means a bank chosen by the exporter for international trade between buyer and seller to ensure timely payments for its goods. For example, after an importer buys products from a foreign country, the issuing bank offers them a letter of credit (LC). The letter then gets notified to the exporter by the notifying bank. Often, notifying banks becomes the confirming bank, accepting bank, or paying bank for the exporter. 

Advising banks play an important role in facilitating international trade by removing the element of fraud as its responsible for validating the originality of the letter of credit issued by issuing banks at the behest of the importer. However, it does not play any role in payment to the exporter unless otherwise mentioned. Mostly located in the home country of the exporter it:

  • Could be a bank branch of the corresponding or issuing bank. 
  • Could be any bank the exporter appoints with a good rapport.

The exporter often picks the advisory bank. This bank is typically one with which the exporter has a connection, such as the main bank for the company. Frequently, the advising bank would restrict the importer to a small group of banks in his nation.

Using a letter of credit mechanism greatly reduces the complexity of international shipping, which one may find highly complicated. A sales deal involving parties from different nations usually always uses an advisory bank. An importer’s acquisition of products from abroad starts the process. The exporter requests that the importer send a letter of credit to his bank to ensure that the funds are available. The products are shipped when the issuing bank notifies the exporter’s advising bank that the funds are available.

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Situations For The Letter of Credit (LC)

Two different situations exist for the LC:

Case #1

  • The issuing bank of the importer mostly sends LC to its branch or correspondent branch located at the exporters’ location to prevent fraud.
  • Therefore, the branch or correspondent branch office holds the specimen signature of both parties in the file. 
  • They do it to match the signatures and the secret test key on LC from any forged LC.
  • As a result, the trade becomes safe and risk-free for exporters.

Case #2

  • The exporter specifically requests the importer to appoint its designated bank as a notifying bank through LC.
  • It benefits the exporter as it gets lower charges for dealing with its bank, which has cordial relations.
  • Moreover, the exporter does not have to worry about problems like receiving payments after the importers receive the goods.

Advising Bank vs Issuing Bank vs Confirming bank 

The prime difference is that an advising bank is also unrelated to the location of the letter of credit expiration or availability. On the other hand, even if the nominated bank or issuing bank chooses not to pay, the confirming bank still needs to pay the beneficiary the amount of the letter of credit against a compliant presentation. Let us understand some other differences from the following table.

Issuing BankAdvising BankConfirming Bank
Issuing Bank prepare and issues LC for the importer.Advising bank passes on the prepared LC information to the exporter.Confirming banks have to negotiate credit with the notifying bank without recourse.
This bank gets to select the banks and assign them roles for the entire export-import of the goods.The role of advising banks in lc remains limited to accepting or declining to be the notifying bank.Any bank could become confirming bank if issuing bank requests it to do so.
It gets chosen by the importer of the goods.It either gets chosen by the importer or at the exporter’s location.The issuing bank can select the confirming bank to make it convenient for the exporter.
These banks are mandated to honor all the LCs presented to them for payment.They have no obligation to pay the exporter for their goods exported.These banks are fully obliged to pay or negotiate the acceptance on the sight of LC.
They have to ensure the authenticity of the LCs presented to them.They may or may not check the documents of LC.It examines the validity of the LC presented to it instead of certain fees and honors it or becomes the security in case of non-payment by issuing bank.
It acts as the issuer of the LC of the importer.The advising bank LC only acts as an agent to the issuing bank.The bank co-owns the responsibility of issuing bank when it confirms the LC.
It releases the payment to the confirming bank after all the conditions in LC get fulfilled.It has no such responsibility towards payments.After confirming the document’s originality and fulfillment o the terms of LC, it has to pay the exporter on the sight of LC if it has not expired or falls within the payment period.
There can only be one issuing bank.An exporter can request a second advising bank from the importer.There can also be two confirming banks where one would become reimbursing to the first confirming bank.

Frequently Asked Questions (FAQs)

1. Can advising bank refuse to advise lc?

The advising bank may talk to the beneficiary about the LC and any amendments but may not negotiate the LC’s terms.

2. Can LC advising bank be changed?

A letter of credit that can be revoked or amended by the issuing bank whenever it chooses, without the beneficiary’s knowledge or approval, is known as a revocable letter of credit. Such LCs are unsafe in the exporter’s eyes. Additionally, the exporter cannot confirm such LCs because no bank will add confirmation on revocable LCs.

3. Can issuing banks be advising bank?

It is nearly impossible for an issuing bank also to play the role of a notifying bank, as importers and exporters have different countries of origin. Typically, the advising bank is situated in the nation of the recipient. It may be either (1) a correspondent bank or branch office of the issuing bank or (2) a bank chosen by the beneficiary. The recipient must feel at ease with the advising bank, which is a key factor.

4. What is advising bank and negotiating bank?

The notifying bank advises LC to an exporter that gets presented to negotiating bank for validation and subsequent payment after all terms and conditions get fulfilled within the expiry date.

This has been a guide to Advising Banks and its meaning. We explain it with situations for the bank LC and compare it with issuing and confirming banks. You can learn more about it from the following articles –

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