Definition
The term nominated bank refers to the financial institution that receives payment on behalf of a beneficiary to a letter of credit. Nominated banks are typically used to facilitate the receipt of payment when goods or services are provided to the importer.
Explanation
When an importer, or buyer / applicant, enters into an agreement with an exporter, or seller / beneficiary, a nominated bank will receive payment from the buyer's bank when the documented conditions of the agreement are fulfilled. Along with the advising bank, the nominated bank plays a key role when a letter of credit is used for international trade.
Issuing banks, also known as buyer's banks, are used by importers to issue letters of credit; thereby assuring payment will be made by an importer when goods or services are provided by an exporter. The nominated bank facilitates the eventual payment to the exporter by the buyer. It is the bank that is authorized to pay as stipulated in a documentary credit and is bound to pay under the line of credit. Nominated banks, advising banks, and issuing banks are frequently used by importers and exporters to avoid cases of fraud.
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