Confirmed vs. Unconfirmed LC – What’s the Difference?

Letters of credit (LCs) can sometimes feel like a maze of terminology. Among the first distinctions every LC learner comes across is between a confirmed LC and an unconfirmed LC. The difference may sound simple, but it has big implications for the beneficiary’s security of payment. Many students also wonder if the advising bank is always the one confirming the LC. Let’s look at these questions together.

QUESTION

Dear Mr. Old Man,

I am a student of a University. I know your website via my lecturer’s introduction. It’s really an interesting blog useful for those who eat, sleep and breathe letters of credit.

Now I have a question that needs your clarification:

What is the difference between a confirmed LC and an unconfirmed LC?

Is the advising bank always a confirming bank?

I really look forward to hearing from you.

Thank you in advance.

Yours sincerely,

Chau Ng

________

ANSWER

Hi Chau Ng,

Thank you for your kind words, and welcome to the fascinating (and sometimes confusing) world of LCs! Your question is a very good one because many beginners assume the advising bank is automatically the confirming bank. Let’s clear that up.

Confirmed LC

A confirmed LC is one to which a bank (called the confirming bank) has added its confirmation — that is, its own independent undertaking to honour or negotiate, in addition to that of the issuing bank (see Article 8, UCP 600). With a confirmed LC, the beneficiary enjoys a “double guarantee”: one from the issuing bank and one from the confirming bank.

Beneficiaries usually insist on a confirmed LC when they have concerns about the issuing bank’s creditworthiness or when the importer’s country faces political or economic instability. By having confirmation, they can still get paid by a strong confirming bank even if the issuing bank or its country runs into trouble.

The confirming bank is normally a financially strong institution trusted by the beneficiary, often domiciled in the beneficiary’s country. However, it could also be located in a third country, depending on the arrangement and the beneficiary’s preference.

Unconfirmed LC

An unconfirmed LC is one that an advising bank has advised to the beneficiary without adding its confirmation. In this case, the beneficiary relies solely on the issuing bank’s undertaking to honour or negotiate under the credit (see Article 7, UCP 600).

How to identify? – Field 49 of MT700 (Confirmation Instructions)

• CONFIRM – The advising bank is requested to add its confirmation.
• MAY ADD – The advising bank may add its confirmation at its discretion.
• WITHOUT – No confirmation is requested; the LC will be advised without confirmation.

Is the advising bank always the confirming bank?

No. The advising bank’s basic role is to authenticate and forward the LC to the beneficiary. It only becomes a confirming bank if it explicitly adds its confirmation. If it refuses to confirm when requested, it must notify the issuing bank without delay, but it may still advise the LC without confirmation.

A note on silent confirmation

Sometimes a bank agrees privately with the beneficiary to add its own undertaking to pay, even though the issuing bank has not requested it. This is called silent confirmation. It lies outside the UCP framework and is purely contractual between the beneficiary and the bank.

I hope this helps clarify the difference. Keep asking questions — the more you dig into LCs now, the more fluent you’ll be when you start handling them in practice.

Best regards,

Mr. Old Man