{"id":361,"date":"2018-01-22T16:21:47","date_gmt":"2018-01-22T21:21:47","guid":{"rendered":"http:\/\/www.letterofcredit.biz\/?p=361"},"modified":"2025-02-15T23:06:11","modified_gmt":"2025-02-16T04:06:11","slug":"confirmation-and-confirmed-letter-of-credit","status":"publish","type":"post","link":"https:\/\/www.letterofcredit.biz\/index.php\/2018\/01\/22\/confirmation-and-confirmed-letter-of-credit\/","title":{"rendered":"Confirmation and Confirmed Letter of Credit"},"content":{"rendered":"\n<div class=\"wp-block-group is-nowrap is-layout-flex wp-container-core-group-is-layout-ad2f72ca wp-block-group-is-layout-flex\">\n<p class=\"has-black-color has-text-color has-link-color wp-elements-214286024665c1a9d58d251a986feace\" style=\"font-style:normal;font-weight:600\">Updated on:<\/p>\n\n\n<div style=\"font-style:normal;font-weight:600;\" class=\"wp-block-post-date__modified-date has-link-color wp-elements-38778e6897e08243aa86755516555323 wp-block-post-date has-text-color has-black-color\"><time datetime=\"2025-02-15T23:06:11-05:00\">15 February 2025<\/time><\/div><\/div>\n\n\n\n<p>When an irrevocable letter of credit is issued, the risk of payment rests with the issuing bank.&nbsp;This type of letter of credit is defined as an unconfirmed letter of credit.<\/p>\n\n\n\n<p>However, in certain circumstances, the exporter may find the issuing bank not fully trustworthy&nbsp;and\/or the country where it is located has high political or economic&nbsp;uncertainty.<\/p>\n\n\n\n<p>In this situation, the exporter should consider requesting a confirmed letter of credit.<\/p>\n\n\n\n<p>Confirmation is a security tool for the exporters. Confirmation eliminates country risks and insolvency risks of the issuing bank.<\/p>\n\n\n\n<p>With a confirmed letter of credit, another&nbsp;bank, the confirming bank, usually located in the same country that the exporter is located, will add its confirmation to the letter of credit.<\/p>\n\n\n\n<p>By&nbsp;adding its confirmation, the confirming bank undertakes to honour the exporter\u2019s claim under the letter of credit, provided all terms and&nbsp;conditions of the letter of credit are met. (1)<\/p>\n\n\n\n<!--more-->\n\n\n<div class=\"wp-block-image\">\n<figure data-wp-context=\"{&quot;imageId&quot;:&quot;69d26d9354305&quot;}\" data-wp-interactive=\"core\/image\" data-wp-key=\"69d26d9354305\" class=\"aligncenter size-large wp-lightbox-container\"><img data-dominant-color=\"f0f3f4\" data-has-transparency=\"false\" style=\"--dominant-color: #f0f3f4;\" decoding=\"async\" width=\"1024\" height=\"701\" data-wp-class--hide=\"state.isContentHidden\" data-wp-class--show=\"state.isContentVisible\" data-wp-init=\"callbacks.setButtonStyles\" data-wp-on--click=\"actions.showLightbox\" data-wp-on--load=\"callbacks.setButtonStyles\" data-wp-on-window--resize=\"callbacks.setButtonStyles\" sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/benefits-confirmed-letter-of-credit-1024x701.webp\" alt=\"\" class=\"wp-image-8003 not-transparent\" srcset=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/benefits-confirmed-letter-of-credit-1024x701.webp 1024w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/benefits-confirmed-letter-of-credit-300x206.webp 300w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/benefits-confirmed-letter-of-credit-768x526.webp 768w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/benefits-confirmed-letter-of-credit.webp 1235w\" \/><button\n\t\t\tclass=\"lightbox-trigger\"\n\t\t\ttype=\"button\"\n\t\t\taria-haspopup=\"dialog\"\n\t\t\taria-label=\"Enlarge\"\n\t\t\tdata-wp-init=\"callbacks.initTriggerButton\"\n\t\t\tdata-wp-on--click=\"actions.showLightbox\"\n\t\t\tdata-wp-style--right=\"state.imageButtonRight\"\n\t\t\tdata-wp-style--top=\"state.imageButtonTop\"\n\t\t>\n\t\t\t<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"12\" height=\"12\" fill=\"none\" viewBox=\"0 0 12 12\">\n\t\t\t\t<path fill=\"#fff\" d=\"M2 0a2 2 0 0 0-2 2v2h1.5V2a.5.5 0 0 1 .5-.5h2V0H2Zm2 10.5H2a.5.5 0 0 1-.5-.5V8H0v2a2 2 0 0 0 2 2h2v-1.5ZM8 12v-1.5h2a.5.5 0 0 0 .5-.5V8H12v2a2 2 0 0 1-2 2H8Zm2-12a2 2 0 0 1 2 2v2h-1.5V2a.5.5 0 0 0-.5-.5H8V0h2Z\" \/>\n\t\t\t<\/svg>\n\t\t<\/button><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading has-black-color has-text-color has-link-color wp-elements-7f367c46e9cf1adcbecf714c6fa9d436\"><strong>What are the benefits of a confirmed letter of credit?<\/strong><\/h2>\n\n\n\n<p>As I have discussed earlier, there are some <strong><a href=\"http:\/\/www.letterofcredit.biz\/index.php\/2018\/01\/17\/risks-in-letters-of-credit\/\">risk factors exist for each party in a letter of credit transaction<\/a>.<\/strong><\/p>\n\n\n\n<p>When we look at the risk issue from the beneficiary&#8217;s perspective, we will observe two main risk factors that beneficiaries must bear; the country risk and the insolvency risk of the issuing bank.<\/p>\n\n\n\n<p>Confirmation can be seen as a security mechanism, which works in favor of the beneficiary to eliminate these risk factors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-1b1ca7a88512d175758ccd9d295072bd\" style=\"color:#0463bb;font-size:24px\">Advantages of Confirmed Letter of Credit in Terms of Country Risk:<\/h3>\n\n\n\n<p>In confirmed letters of credit, the country risk of the issuing bank is replaced by the country risk of the confirming bank.<\/p>\n\n\n\n<p>For example, when a bank in Germany confirms a letter of credit issued from Kenya, the exporting company avoids the country risk of Kenya.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-6338ee53e31d424600dd4c625387dd2e\" style=\"color:#0463bb;font-size:24px\">Avoiding the Issuing Bank&#8217;s Bankruptcy Risk:<\/h3>\n\n\n\n<p>By adding confirmation to the letter of credit, the exporting company avoids the risk of the issuing bank in a risky country going bankrupt or being unable to pay the letter of credit amount.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-3817073bc6559cc2104925b14bdbe718\" style=\"color:#0463bb;font-size:24px\">Opportunity to Work with Well-Established Banks:<\/h3>\n\n\n\n<p>With the confirmation mechanism, exporting companies have the opportunity to work with more well-established banks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading has-text-color has-link-color wp-elements-4a68cf8d29144f6db52c2e7807974bbd\" style=\"color:#0463bb;font-size:24px\">Responsibility of the Confirming Bank in Legal Processes:<\/h3>\n\n\n\n<p>In certain legal processes, the exporting company can address the confirming bank.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-black-color has-text-color has-link-color wp-elements-2cb4c4054d076a95e9dacd07ebbe20b7\"><strong>What is a confirmation?<\/strong><\/h2>\n\n\n\n<p>Let us look at the definitions of confirmation and confirming bank from the UCP 600.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;Confirmation means a definite undertaking of the confirming bank , in addition to that of the issuing bank, to honour or negotiate a complying presentation.&#8221;<\/li>\n\n\n\n<li>&#8220;Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank&#8217;s authorization or request.&#8221;<\/li>\n<\/ul>\n\n\n\n<p>As can be seen on the above definitions, confirming bank adds its undertaking to the letter of credit in addition to that of the issuing bank.<\/p>\n\n\n\n<p>In this way, the beneficiary receives a second payment guarantee from another bank.<\/p>\n\n\n\n<p>Insolvency risk of the issuing bank is eliminated by addition of this second payment guarantee to the letter of credit.<\/p>\n\n\n\n<p>Mostly, the confirming bank and the beneficiary are located in the same country.<\/p>\n\n\n\n<p>If this is the case, the country risk of the issuing bank is eliminated, because a bank which locates in the same country with the beneficiary adds its payment undertaking to the letter of credit in addition to that of the issuing bank.<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-black-color has-text-color has-link-color wp-elements-5ee9e45f5298de2aecbd0b5824a52c1f\"><strong>Key Points of a Confirmed Letter of Credit<\/strong><\/h2>\n\n\n\n<p>After discussing the benefits of the confirmation in a letter of credit transaction, let us examine the key points that need to be taken into consideration regarding the confirmed letter of credit.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Only irrevocable letters of credit can be confirmed.<\/li>\n\n\n\n<li>During the issuance phase of a letter of credit, the issuing bank should &#8220;authorize or request&#8221; the potential confirming bank to add its confirmation to the letter of credit.<\/li>\n\n\n\n<li>No bank can be forced to add its confirmation to any letter of credit.<br><br>If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation. (UCP 600 article 8 ii-d)<\/li>\n\n\n\n<li>Confirming a letter of credit does not mean that confirming bank is obligated to confirm any subsequent amendment or amendments.<\/li>\n\n\n\n<li>A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the letter of credit. (UCP 600 article 8 ii-b)<\/li>\n<\/ul>\n\n\n\n<p class=\"has-black-color has-text-color has-link-color wp-elements-9f12c8b8ddb18dd5496fac2f6ce1fdbf\"><strong>Sources:<\/strong><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>A Guide to&nbsp;Letters of Credit,&nbsp;TD Securities, page: 24<\/li>\n<\/ol>\n\n\n\n<div class=\"wp-block-group alignfull has-text-color has-background\" style=\"color:#000000;background-color:#ffffff\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"has-text-align-center has-small-font-size\" style=\"line-height:.9\"><strong>\u00d6ZG\u00dcR EKER (CDCS)<\/strong><\/p>\n\n\n\n<p class=\"has-text-align-center\" style=\"font-size:32px\"><strong>Letter of Credit Consultancy Services<\/strong><\/p>\n\n\n\n<div class=\"wp-block-buttons is-horizontal is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-499968f5 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-50\"><a class=\"wp-block-button__link has-text-color has-background wp-element-button\" href=\"https:\/\/www.letterofcredit.biz\/index.php\/contact-us\/\" style=\"border-radius:50px;color:#ffffff;background-color:#000000\">Contact us<\/a><\/div>\n<\/div>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>When an irrevocable letter of credit is issued, the risk of payment rests with the issuing bank.&nbsp;This type of letter of credit is defined as an unconfirmed letter of credit. However, in certain circumstances, the exporter may find the issuing<\/p>\n","protected":false},"author":1,"featured_media":6679,"comment_status":"closed","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[532,60,22,54],"tags":[82,77,81,36],"class_list":["post-361","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-confirmation","category-confirmed-letter-of-credit","category-basics","category-letter-of-credit-types","tag-confirmation","tag-confirmation-fee","tag-confirmed-letter-of-credit","tag-confirming-bank"],"_links":{"self":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts\/361","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/comments?post=361"}],"version-history":[{"count":0,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts\/361\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/media\/6679"}],"wp:attachment":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/media?parent=361"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/categories?post=361"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/tags?post=361"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}