Why Do Confirming Banks Prefer “Available with Confirming Bank”?

Why do confirming banks so often require the LC to be available with them, even though UCP 600 allows confirmation when the LC is available with another nominated bank? In this Q&A, Mr. Old Man explains the practical reasons behind this practice and highlights a hidden risk for beneficiaries when the confirming bank is located outside their own country.

QUESTION

Dear Mr. Old Man,

I have a query about LC confirmation that why confirming bank often requires “LC available with confirming bank.”

Assume LC is available with any bank, confirming bank can set the condition a complying presentation to them constitute their honor, which means the documents are still presented to them.

Is there any risk that I haven’t been aware of?

I’m seeking for your expertise on this matter.

Thank you for your time!

Lise

_______

ANSWER

Hi Lise,

Thank you for your thoughtful question.

According to Article 8 UCP 600, provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must honour or negotiate without recourse, whether or not the documents are presented to another nominated bank.

So, a confirmed LC can technically be issued available with the confirming bank or with another nominated bank. However, in practice it is common (though not universal) for the confirming bank to require the LC to be available with itself. The reasons are straightforward:

• The confirming bank, as nominated bank, has the primary obligation to honour or negotiate the documents.
• The confirming bank also earns its banking charges if documents are presented directly to it.

Now, to your point on risk:

1. If the LC is available with another nominated bank:
   • The confirming bank would normally prefer the issuing bank to amend the LC to make it available with itself, rather than unilaterally stating such a condition in its confirmation.
   • In practice, if another nominated bank honours or negotiates, it will forward the documents to the confirming bank for reimbursement.
2. If the LC is available only with the confirming bank outside the beneficiary’s country:
   • The beneficiary (or their bank) must send documents abroad. If those documents are lost in transit before reaching the confirming bank, the beneficiary is not protected under Article 35 UCP 600, which only covers loss in transit between banks.
   • This creates a very real payment delay or even non-payment risk: from the confirming bank’s perspective, no presentation has been made, so its obligation never arises.

That’s why, from the beneficiary’s standpoint, it is generally safer to have the confirming bank domiciled in their own country, or at least to ensure another nominated bank in their country is available to receive documents.

Best regards,

Mr. Old Man