DOUBLE CONFIRMATION: IS IT POSSIBLE?

Today, Facebook reminded me of a fascinating discussion that took place 16 years ago — on 27 June 2009 — on the now-defunct DCPro forum. It revolved around a rather rare scenario: a letter of credit confirmed by two separate confirming banks.

The original question came from Khalid (UAE), and the conversation included insightful responses from renowned trade finance experts J. Smith (UK) and Glenn Ransier (USA) — two professionals I deeply admire for their knowledge, experience, and generous contributions to what was then the most reputable LC forum.

I’m sharing the original Q&A below and would love to hear your thoughts.

Mr. Old Man

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QUESTION FROM KHALID (UAE):

Even though UCP 600 does not explicitly mention or prohibit it, can an issuing bank request Bank A to add confirmation and then ask Bank A to advise the LC to Bank B for re-confirmation of Bank A’s risk?

If this structure is clearly stated in the LC, should Bank B treat the issuing bank or Bank A as the primary obligor?

— Khalid

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 COMMENT FROM MR. OLD MAN:

Strange as it may sound, this is entirely possible.

By adding its confirmation, Bank B becomes a second nominated (confirming) bank, obligated to honour or negotiate a complying presentation and forward the documents to the first confirming bank — Bank A — for reimbursement. Under UCP 600 Article 8(c), Bank A would then be obligated to reimburse Bank B.

Following this logic, Bank A should be considered the primary obligor from Bank B’s perspective. However, if Bank A fails to reimburse, Bank B still retains the right to claim reimbursement from the issuing bank.

One final thought: double confirmation usually means double fees for the beneficiary. I do wonder why a beneficiary would insist on such a structure when confirmation by just one bank would already secure the payment.

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COMMENT FROM J. SMITH (UK):

To avoid the delay and added cost of routing documents through Bank A — including additional document examination fees — the issuing bank could instead instruct Bank A to issue a reimbursement undertaking in favour of Bank B.

Assuming Bank B is only willing to add its confirmation based on the backing of Bank A’s confirmation or reimbursement undertaking, then it should record its exposure against Bank A, not the issuing bank.

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COMMENT FROM GLENN RANSIER (USA):

I’ve accommodated this structure under specific circumstances. Typically, the two confirming banks agree on fees or a fee-sharing arrangement, and in most cases, only one of them examines the documents.

I’ve also handled cases where the LC value was split — part confirmed by me, and part by another bank.

That said, Jeremy is right — a reimbursement undertaking from one bank to another is often a more efficient structure. Unfortunately, the concept of an RU isn’t always fully understood by all parties.

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QUESTION FOR DISCUSSION:

Can a letter of credit be confirmed by more than one bank?

Under what circumstances does it make sense, and what precautions should parties take?

Your thoughts are always welcome and appreciated.

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