What are the Differences Between Confirming Bank and Nominated Bank?

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.

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.

The roles and responsibilities of the nominated bank and the confirming bank are significantly different. For this reason, exporters and importers need to understand the key distinctions between these two banks.


On this post, you can find not only the definition of a nominated bank and a confirming bank according to letter of credit rules, but also how they differ from each other.


Definitions:


Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

Confirming bank means the bank that adds its confirmation to a letter of credit upon the issuing bank's authorization or request.

Differences:


Payment Obligation:

The nominated bank, may be liable to pay the credit amount only when the nominated bank expressly agreed to pay the credit amount to the beneficiary.

Nominated bank's payment obligation may be fulfilled with recourse basis: In case the nominated bank could not get the reimbursement from the issuing bank, the nominated bank can approach the beneficiary for recompensation.

The confirming bank, on the other hand, is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.

The confirming bank's payment obligation is in without recourse basis. This means that confirming bank could not receive any compensation from the beneficiary if the issuing bak do not reimburse the confirming bank from whatever reason.

Additionally, the confirming bank must reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank.

The confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank's undertaking to the beneficiary.

Place of Presentation:

In case there are both a nominated bank and a confirming bank exist in a letter of credit transaction, the place of presentation is the nominated bank's counters.

Beneficiary should make the presentation to the nominated bank, then the documents must be send to the confirming bank by the nominated bank.

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