Confirming Bank In Letter Of Credit
In theory it is possible that a nominated bank and a confirming bank are present as two separate banks in a letter of credit transaction.
Confirming bank in letter of credit. The advising bank may also assume the role of confirming bank. With a confirmed letter of credit another bank the confirming bank usually located in the same country that the exporter is located will add its confirmation to the letter of credit. C confirming bank i when a bank in the exporters country adds its confirmation to the credit it gives an additional undertaking to the beneficiary in addition to that of the issuing bank to negotiate documents under the credit. The buyers bank issuing the letter of credit and a bank in the sellers country which advised the letter of credit to the beneficiary.
Confirmation is a security tool for the exporters. Confirmation eliminates country risks and insolvency risk of the issuing bank. Confirming bank is the bank that adds its confirmation to a letter of credit. Confirming banks could only add their confirmation if the issuing banks authorize them to do so.
Confirmed the letter of credit transaction usually involves two banks. In case the credit is issued that is available by negotiation with the confirming bank then the confirming bank must negotiate without recourse. Reimbursing bank is the bank that at the request of the issuing bank is authorized to pay or accept and pay time draft under a documentary. Bank in an exporters country which guarantees that the letter of credit established by the importer for the benefit of the exporter will be honored once the conditions therein are fully complied with.
Letters of credit advised vs. On the other hand the confirming bank has to pay the letter of credit amount to the beneficiary against a complying presentation even if nominated bank or issuing bank refrain to pay. Therefore the relationship of the confirming bank with the beneficiary is similar to that of the issuing. Confirming bank and nominated bank are expected to be the same bank although it is not a necessity according to ucp 600.
A confirmed letter of credit is a guarantee a borrower gets from a second bank in addition to the first letter of credit. But in reality it occurs very seldom mainly because of the fact that confirming banks do not add their confirmations to letters of credit which are not available by themselves.
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