What is confirmation?

[SteveC]

I thought I knew but I received an e-mail this week which stated:-

"the purpose and main benefit of confirming a letter of credit is to guarantee payment to the beneficiary by underwriting the issuing bank and country risks and not to expedite payment to him"

I invite debate on the above statement.

Many thanks

[NigelHolt]

I do not see anything wrong, in principle, with the words you quote provided it is not being implied a confirming bank is not obliged to honour / negotiate a complying presentation on its receipt.

[JimBarnes]

I think expediting payment is not a sufficient reason to insist on confirmation. Obligating another bank to determine compliance, protecting against issuing bank credit risk, protecting against having to enforce beneficiary rights under the law and in the courts where the issuer is located--some or all of these considerations are llikely to drive the decision to insist on confirmation. Also relevant to beneficiaries is the belief that issuing banks are more likely to play fair if another bank is the claimant. Regards, Jim Barnes

[SteveC]

Many thanks Jim & Jeremy

The intimation behind the statement was that a confirming bank can wait for reimbursement before paying the beneficiary/presenter. Since most settlements are made to the confirming bank's nostro a/c at another bank this usually means that the confirming bank can only confirm receipt the following day. The beneficiary therefore receives payment at least one day late.

My argument is that a confirming should pay on the date it expects to receive reimbursement, whether it be at sight plus any reimbursement period or at maturity/due date. If reimbursement is not received on this date then the confirming bank may claim interest under Art. 13.b.iii.

[NigelHolt]

The intimation is plain wrong.