Confirmed letter of credit
A confirmed letter of credit is a letter of credit to which a confirming bank has added its own definite undertaking, in addition to the issuing bank's undertaking, to honour or negotiate a complying presentation. Under UCP 600 Article 2, confirmation is that second undertaking, and the confirming bank is the bank that adds it upon the issuing bank's authorisation or request.
Confirmed letter of credit use on bank export finance desks
On EF desks confirmation is requested when the beneficiary will not rely solely on the issuing bank's country, credit standing or operational reach. The confirming bank, usually in the beneficiary's market or a major financial centre, takes issuing-bank and often country risk for a fee. Advising without confirmation is different: an advising bank that is not a confirming bank passes on the credit without any undertaking to honour or negotiate. Confirmation is most common on commercial documentary credits used for capital goods and recurring trade flows. It is less typical on pure standby letter of credit structures, though a standby can also be confirmed where the parties so provide.
Confirming bank undertaking under UCP 600
UCP 600 Article 8 sets the confirming bank's obligations. Provided stipulated documents are presented to the confirming bank or another nominated bank and constitute a complying presentation, the confirming bank must honour, if the credit is available by sight payment, deferred payment or acceptance with the confirming bank, or if another nominated bank fails to pay, incur or accept as required; and negotiate without recourse, if the credit is available by negotiation with the confirming bank.
A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation. It also undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents, an obligation independent of the confirming bank's undertaking to the beneficiary. If a bank is authorised or requested to confirm but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.
Document examination still follows Article 14: a confirming bank has a maximum of five banking days following the day of presentation to determine compliance. The credit remains separate from the underlying contract under Article 4, and banks continue to deal with documents rather than goods or performance under Article 5.
Confirmed versus unconfirmed credits
An unconfirmed credit leaves the beneficiary with the issuing bank's undertaking only, usually reached through an advising bank. A confirmed letter of credit stacks two independent bank undertakings on the same complying presentation. Pricing reflects the confirmer's assessment of the issuer and jurisdiction. Where parties do not need a bank payment undertaking at all, a documentary collection may be used instead, without confirmation mechanics.