Letters of Credit and the Impacts of Pandemic Emergent Rules (Published)
This study addresses the impact of the pandemics may impose on banks to fulfill their obligations towards Letters of Credit (LOC) that have already been issued to clients prior to the pandemic. The study focuses on the vital role of the banks in ensuring that LOC’s remain active and clients may continue to take advantage of them so businesses stay operational and negative impacts of the pandemic to the economy are minimized.The Uniform Customs and Practice for Documentary Credits (UCP 600) authorized the issuance and use of LOC’s. UCP 600 outlines circumstantial procedures that government bodies may adopt to control the inappropriate use of credits. When the world is hit by pandemics, governments have the option to shut down there borders to control entry of affected people and to control the spread of the virus. In such circumstances, banks may also close their doors and may discontinue to do business until such time the government reopen borders and/or banks feel they may reopen for business. When banks cease to operate, clients holding LOC’s may suffer significant financial losses and may result in bankruptcies. The main issue here is that the closure came as a result of an act beyond the control of the countries and the creditors. However, the main issue that this study tries to address is compensation for impacted businesses resulting from loss of validity of LOC’s. Hence, this study looks at various options and recommendations that UCP may consider the next time UCP 600 is up for review and modification. .
Keywords: Bank, UCP, letter of credit, obligation, pandemic