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.

What are the Differences Between Advising Bank and Nominated Bank?

In most cases, the advising bank and the nominated bank is the same institution in a typical letter of credit transaction.

Only in rare occasions, these two banks are apart from each other.

Because, there are significant differences exist between the advising bank and the nominated bank, each side of the transaction, both exporters and importers, should understand the roles and responsibilities of these two banks very well.

On this post, you can find not only the definition of advising bank and nominated bank according to letter of credit rules, but also the main differences between these two banks.

Differences Between Advising Bank and Nominated Bank

Nominated Bank

On this article you can find the definition of a nominated bank, its roles and responsibilities in a typical letter of credit transaction.

Definition: According to current letter of credit rules, UCP 600, nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

Nominated bank has two main functions under a letter of credit transaction.

Firstly, a nominated bank is the presentation point of the documents. As a result, a beneficiary complete its presentation by submitting documents to the counter's of the nominated bank within the time frame indicated in the letter of credit.

Secondly, a nominated bank may act as a discounting bank by purchasing a time draft or documents that have been submitted by the beneficiary and found to be complying by the nominated bank.

Nominated Bank

After briefly defining what nominated bank is and explaining its functions, now we can look further into different aspects of nominated bank.

Confirming Bank

On this article you can find the definition of a confirming bank, its roles and responsibilities in a typical letter of credit transaction.

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

In some situations, issuing banks' payment undertakings would not be sufficient for beneficiaries. This is especially true, when letters of credit are opened from one of the high political and financial risk possessing countries.

If the beneficiary figured it out that the issuing bank or issuing bank's country is not reliable enough, then the beneficiary may seek another bank's payment guarantee added to the letter of credit in addition to issuing bank's payment undertaking.

Confirming Bank

The process as explained above is called confirmation and the bank which adds its confirmation to the letter of credit is known as the confirming bank.

What are the Differences Between Advising Bank and Issuing Bank?

On this article you can find not only the definition of an advising bank and an issuing bank, but also their differences in a typical letter of credit transaction.

Letter of credit is an international payment method. 

It is significantly different than other payment options in international trade, mainly because of the fact that letter of credit is governed by banks.

As a result it is a vital importance to understand banks, their roles and responsibilities in order to act correctly under a letter of credit transaction.

Advising Bank is the bank that advises the letter of credit to the beneficiary. 

Issuing bank, on the other hand, is the bank that issues a letter of credit at the request of an applicant or on its own behalf.

After making the definitions, we can now proceed to understand the key differences between advising banks and issuing banks.