Importer A concluded a deal with company B, payment was by letter of credit. Company A opened L/C through his bank I. Company B shipped the goods as per sales contract and prepared documents required by the L/C. However, when company B was to present the documents, it received a cable from Bank I notifying company B that the applicant was bankrupt, therefore Bank I no longer held liability for payment.

Question: Is the issuing bank entitled to refuse the payment? Please Explain.