Confirming bank

The bank certifying the letter of credit is one of the most important players in the letter of letter of credit payment method for the exporter.

A letter of credit transaction has a minimum of three actors, the actors of which are

• the customer (i.e. the client) 
• the seller (i.e. the beneficiary of the transaction) 
• the opening bank. 

The opening bank (with the collateral provided by the buyer) makes an irrevocable payment promise to the seller in its own name. 

However, a second bank, which is usually the seller's bank, is also a frequent participant in the letter of credit. This bank is requested to cooperate by the opening bank, if instructed to do so by the buyer. As a buyer (importer) issuing a letter of credit order, it is good if you know that the cooperation of the second bank will increase your costs, because according to the international standard (ICC UCP 600), the buyer bears the costs of all the bank participating in the letter of credit. 

As an exporter, it is especially in our interest to involve the second bank, because it is definitely more secure if our bank also becomes part of the letter of letter of credit transaction. In this case, the bank can 

• notifying bank,
• paying bank 
• the bank certifying and confirming the letter of credit.

A combination of these options may also occur.

As a seller, it is safest if our own bank acts as a confirming bank. In this case, you yourself undertake to honor the documents, i.e. to fulfill everything that the opening bank committed to in the letter of credit against our documents certifying the delivery of goods. 

However, it is important to know that the second bank requested by the opening bank may refuse to certify the letter of letter of credit. In case of confirmation, however, the opening bank is obliged to notify the verifying bank of any subsequent modification of the letter of letter of credit. 

Regarding the amendments, the behavior of the verifying bank can be of two types: 

1. obligatorily accepts the modified payment promise of the opening bank, 
2. notifies the seller of the amendment to the letter of letter of credit without confirming the amendment (in this case, the amendment is not mandatory for the seller).

In the case of a certified/confirmed letter of letter of credit, the bank usually notifies the seller in a separate cover letter attached to the letter of credit that it has undertaken to confirm the letter of letter of credit. This also means that a letter of letter of credit in which the opening bank declares that another bank has confirmed its payment commitment in the letter of credit cannot be considered certified.