A Study on Bankers’ Documents Examination Criteria in Letter of Credit Transaction
-Focused on Practical Usage Analysis-

Kim, Sang Jo
Dept. of International Trade Graduate School
Gyeongsang National University
Directed by Professor Choi, Keun -Bae

This study aims to review and analyze the compliance criteria of a letter of credit(L/C) by investigating bankers’procedures for examining document conditions in practice.
Under the base of letter of credit transaction, the payment of bank depends upon just only documents requested in it. Banks require sellers to make a presentation of documents in strictly compliance and matching with the information contained in letter of credit. However, the inconsistency of documents does not ensure prompt payment to the importer and exporter, and causes concerned parties a big loss in practice.
In this study, the researcher tries to grasp and understand the actual condition of strictness on documents which has been applying by practitioners of bank on matching transaction documents under the letter of credit base.
In order to perform practical usage analysis, a questionnaire survey targeted 190 bankers who in charge of the payment for an export and import procedure was conducted, and both frequency analysis and cross-tab analysis using statistical process program, an SPSS 18.0 version were performed. The goodness of fit of cross-tab was verified by Pearson chi-square test, and by statistical significance at the 0.05 level in verification.
The analysis results of documents’examination carried out in practice by banking practitioners are as follows:
Firstly, bankers’document examine practitioners pay a considerable caution on letter of credit inspection, when slight discrepancy taken place, it can be treated as compliance of document.
Secondly, in particular, bankers’document examine practitioners make use of UCP provisions as an international standard banking practices instead of using, such as, an ICC(International Chamber of Commerce) opinion in practical aspect.
Thirdly, any of aggressive attempts does not seem to be existed on recognition by exploring the international standard banking practices, when there is no explicit international standard banking practice.
Fourthly, because UCP 600 arranges the extremely relaxed concept of compliance, if only there is no conflict with the documents in the letter of credit agreement, there seems to be thought to reduce the discrepancy in practice.
Fifthly, bankers’document examine practitioners can not treat anything that without written messages, such as, important documents or intention for originality as an exception of strict compliance during the document review.
Sixthly, because bankers’document examine practitioners can not find out clear standards for document review in UCP at any moment, they can not help examining the document in subjective and arbitrary manner.
Therefore the researcher tries to propose the compliance criteria of bankers’document examine practitioners for rapid document review as follows:
Firstly, for the purpose of wide utilizing the evidence against discrepancies bankers’document examine practitioners have to use the ICC Statement Policy, ICC Opinion, and so forth.
Secondly, bankers’document examine practitioners have to take active examination of documents after exploring the international standard banking practice, rather than to take a defensive position during the document examination in practice.
Thirdly, bankers’document examine practitioners have to maintain the flexibility in dealing with international standard banking practices with the ISBP, without excessive biased judgement with the UCP in practical use.
Fourthly, bankers’document examine practitioners should have the elasticity not only for judging the severity of the condition, but treating the matching principle to exception of letter of credit.
Fifthly, bankers’document examine practitioners have to take some treatment to reduce discrepancies within the scope of their discretion recognized by UCP.
The compliance criteria of bankers’document examine practitioners proposed in the research will secure prompt payment, avoiding disputes on discrepancy criteria in practice. Thus, the researcher expects to expand the usage of letter of credit transaction, to make a delayed payment for a long term to prompt settlement in practice.