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.


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.

Issuing Bank

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

Letters of credit transactions are started and ended by issuing banks.

An issuing bank negotiates with the applicant to draft the letter of credit, determines the conditions for payment, issues it in swift format and transmits it to the advising bank.

Advising bank, confirming bank, nominated bank are all selected by the issuing bank, as well. Additionally, payment or refusal decision is given by the issuing bank, at the end of the transaction.

Issuing bank sits on the core of letters of credit and today, we are going to understand, why.

Let me start my article with the definition of the letter of credit:
the definition of an issuing bank, its roles and responsibilities in a typical letter of credit transaction.
Issuing Bank
According to letter of credit rules, letter of credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.

The same rules define issuing bank is the bank that issues a letter of credit at the request of an applicant or on its own behalf.

Letter of Credit Basics: Parties to Letters of Credit

Letter of credit is a payment method in international trade. It is usually shortened as L/C or DLC. DLC means Documentary Letter of Credit or Documentary Credit. 

As of yesterday, I have started to write down a new series of articles regarding letters of credit. The 1st article was about the definition and types of letters of credit.  

Today, on this article, I will try to introduce you the parties to a simple letter of credit transaction. Each L/C party will be presented briefly and its role will be explained with the help of the graphic images. 

In a typical letter of credit transaction, one should expect to see following parties: applicant, beneficiary, issuing bank, confirming bank, nominated bank and reimbursing bank.

Parties to Letters of Credit

Let us start understanding these parties along with their roles and responsibilities one by one below.