Confirming Banks: Who Pays When the Issuing Bank's Country Cannot Transfer Funds

Short answer. A confirmed letter of credit carries a second bank's undertaking to pay a complying presentation, in addition to the issuing bank's. Confirmation is worth its cost when the risk you cannot carry sits in the issuing bank or in its country, and when the confirming bank is outside that country. It does not protect you against your own document errors, and it may not be available at all once banks have stopped taking risk in a market. ICC Academy, types of documentary credit ITA, Trade Finance Guide 2022

There are four choices: request confirmation, accept a silent confirmation, price the risk into the sale, or decline. Which fits depends on which of three risks worries you.

Three distinct risks behind one credit

Sellers often merge these into "the LC risk". They have different remedies.

1. The buyer fails. The buyer becomes insolvent or changes its mind. The credit itself already moves this risk: the issuing bank's promise depends on compliant documents, not the buyer's willingness. It returns only if your documents are refused and the buyer must waive discrepancies. For the underlying mechanism, see what a documentary letter of credit pays for.
2. The issuing bank fails or will not pay. The bank is weak, unknown to you or slow. ITA's guide says that with an unconfirmed credit the exporter "is subject to the payment risk of the foreign bank and the political risk of the importing country". ITA, Trade Finance Guide 2022, p. 10
3. The country blocks the transfer. The issuing bank is solvent and willing, but foreign currency is rationed or cannot leave. The OECD describes transfer and convertibility risk as the risk that a government imposes capital or exchange controls that stop an entity converting local currency or paying creditors abroad. OECD, country risk classification

ICC Academy lists country risk, with doubts about the issuing bank and document-interpretation risk, among the usual reasons sellers request confirmation. ICC Academy, types of documentary credit

Risk	Unconfirmed credit	Confirmed by a bank outside the issuing country	Confirmed by a bank inside the issuing country	Silent confirmation
Buyer fails, documents comply	Issuing bank	Both banks	Both banks	Issuing bank; silent confirmer per its agreement
Issuing bank fails	Seller	Confirming bank	Confirming bank	Per the agreement, including any recourse
Country blocks the transfer	Seller	Confirming bank	Usually not relieved: same controls	Per the agreement
Your documents are discrepant	Seller	Seller	Seller	Seller

The inside-versus-outside column is editorial reasoning from the OECD definition, not a rule: a bank subject to the same controls cannot move money that the controls stop.

What adding a confirmation changes

ICC Academy defines confirmation as a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation. ICC Academy, types of documentary credit Three consequences follow.

• A second promisor. You can look to a bank you can assess.
• Timing moves to your side of the border. ITA's guide states that on a strictly complying presentation, the confirming bank pays the exporter before it is reimbursed by the issuing bank. ITA, Trade Finance Guide 2022, p. 10 If reimbursement is queued, the confirming bank waits, not you.
• Compliance still decides everything. Both undertakings are for a complying presentation. A discrepant set leaves you where the unconfirmed seller stands, dependent on the buyer's waiver. See why banks refuse documents and how to fix a presentation.

Whether a credit invites confirmation is shown in its confirmation instructions; the field-by-field check is in reading an LC before you accept it. If you are still choosing between a credit and a collection, see documentary collection or letter of credit.

Silent confirmation, and the discount arrangement that resembles it

When the credit does not invite confirmation, a seller's bank may offer a silent confirmation. ICC Academy describes it as a private arrangement between a bank and the beneficiary, made without the issuing bank's knowledge. It says the arrangement is not covered by UCP and costs more, partly because no confirmation request from the issuing bank exists. ICC Academy, types of documentary credit

Its protection is only as good as its terms. Legal commentary by Alan Tyree discusses an Australian case, Greenhill International Pty Ltd v Commonwealth Bank of Australia [2013] SADC 7. The "silent confirmation" there assigned the seller's rights against the issuing bank to the bank and gave the bank recourse to the seller on delay, default or loss; the court implied a duty to pursue payment before using that recourse. Alan L Tyree, silent confirmation of credits That is one court in one jurisdiction; other markets differ.

An arrangement with recourse to you is closer to discounting than to confirmation: the bank advances money, but the risk returns if the issuing bank or its country does not pay. Compare forfaiting, which ITA describes as selling receivables at a discount "without recourse", with the forfaiter accepting the risk of non-payment. ITA, Trade Finance Guide 2022, p. 24

Before accepting one, ask:

• Is there any recourse to you, and on what events: issuing-bank default, delay, transfer restriction?
• Does the bank assign or take over your rights against the issuing bank?
• Is payment unconditional on a complying presentation, or subject to the bank's own later judgement?
• Does the price reflect a non-recourse commitment?

How confirmation is priced, and what drives the number

No published tariff applies, and this article gives no market rate. The drivers are:

• The issuing bank. EXIM's blog says the confirming bank charges "a fee based upon the credit strength of the issuing bank". EXIM, to confirm or not to confirm The ICC Trade Register, which counts confirmed and silently confirmed export letters of credit together, says those exposures, with rare exceptions, "constitute bank risk". ICC, Trade Register 2025 market commentary
• The country. A stated reason for confirmation, so it sits in the price. OECD country classifications exist to set minimum premium rates for officially supported export credits, and their use for other purposes is not endorsed; do not read a bank's fee from them. OECD, country risk classification
• Tenor and capital. Banks hold capital against claims on issuing banks. In 2011 the Basel Committee agreed two technical changes for short-term, self-liquidating letters of credit: basing the calculation on effective maturity instead of a one-year floor, and waiving the sovereign floor for a confirming bank's claims on an issuing bank. The stated aim was cheaper trade finance for low-income countries. BIS, treatment of trade finance under the Basel framework Longer tenor means longer exposure.
• Structure. Silent confirmation costs more than requested confirmation, according to ICC Academy (above).

The Trade Register illustrates the country dimension. ICC reports that 2024 defaults on export letters of credit were typically much lower than for other trade finance products and "almost entirely concentrated in Russia", which it links to sanctions. ICC, Trade Register 2025 market commentary, p. 25 That is aggregate data for one year, not a rating of any market.

When you ask for a quote, ask: is the fee on the full credit amount including tolerance, flat or per period, subject to a minimum, and what applies on amendment or extension?

When confirmation is unavailable at any price

Sometimes no bank will confirm. That refusal is information, not an obstacle to shop around.

Official schemes exist where private appetite runs short. IFC's Global Trade Finance Program offers confirming banks partial or full guarantees against payment risk on emerging-market banks. IFC, Global Trade Finance Program Official support can also be closed by country: the US EXIM Country Limitation Schedule (effective 30 July 2026) marks, by country and tenor, whether support is available ("Y") or not ("N"). EXIM, Country Limitation Schedule

If banks with correspondent relationships in a market will not add their name, they may lack appetite for that issuing bank or country, or expect slow reimbursement. Shipping unconfirmed then means carrying a risk that better-informed banks declined. Ask your bank which applies. The answer changes the remedy: a different issuing bank can solve a bank-specific refusal, but it will not solve a country-wide one.

Alternatives when confirmation is too costly or refused

• Shorter tenor. Less time exposed, and maturity counts in a bank's capital calculation (see above). A shorter tenor does not help if reimbursement is already queued at maturity.
• A different issuing bank. Ask the buyer to use a bank your bank will confirm, or one in a programme such as GTFP.
• Part-advance. Take a share before shipment and confirm or insure the balance; see advance payment: how much is reasonable.
• Insurance. ITA's guide states that export credit insurance covers certain political risks, including currency inconvertibility. ITA, Trade Finance Guide 2022, p. 20 Covers are national and conditional: UKEF's Export Insurance Policy covers events outside the UK that prevent payment in foreign currency. UKEF, all products EXIM's Letter of Credit insurance is for banks, and for US-produced goods. EXIM, letter of credit insurance Check eligibility with your own export credit agency or broker.
• Decline, when the unconfirmed exposure exceeds what the business can afford to wait for.

Worked example: a solvent bank and a queued transfer

Hypothetical teaching example. The parties, market, rates and figures are invented, in currency units (CU). They are arithmetic, not market data.

A seller agrees to supply 1,000 tonnes of rice at 480 CU per tonne, 480,000 CU, payable at sight under a credit from Bank I. Bank I sits in a market with a foreign-currency backlog. The seller's own cost of money is 10% a year (360-day basis). Documents comply. Bank I is solvent and honours, but its transfer abroad waits 150 days in the allocation queue.

	A: Unconfirmed	B: Confirmed by a bank outside the market
Who pays the seller	Bank I, when the transfer clears	Confirming bank, on a complying presentation
Assumed days to payment	150	5
Confirmation fee (invented 1.75% of the credit amount)	0	8,400 CU
Cost of waiting: 480,000 × 10% × days ÷ 360	20,000.00 CU	666.67 CU
Cost to the seller	20,000.00 CU, if the queue clears on day 150	9,066.67 CU

Confirmation costs 10,933.33 CU less than waiting and, more importantly, fixes the cost. In column A the 150 days is a guess and the queue may lengthen; in column B the confirming bank waits.

Two variations change the answer:

• A discrepancy. If the bill of lading date breaches the credit, neither column pays on presentation; the seller is back in column A and needs the buyer's waiver.
• Silent confirmation with recourse. If the bank may reclaim its payment when Bank I's transfer does not arrive, the seller is paid on day 5 but still carries the queue.

Pricing it in before quoting. If the seller bears a fee calculated on the credit amount, it grosses up the price: 480,000 ÷ (1 − 0.0175) = 488,549.62 CU, or 488.55 CU per tonne. The fee on that amount is 8,549.62 CU, leaving 480,000 CU. The five days' cost of waiting is not included; add it if material.

Building the cost into the price before you quote

Confirmation cost is easiest to recover before the price is fixed. A sequence:

1. Identify the likely issuing bank and country before quoting.
2. Ask your bank for an indication: will it confirm, at what fee and on what basis, and for what tenor and amount?
3. Agree who pays confirmation charges in the contract, and make the credit match it. The charges field is checked as part of reading an LC before you accept it.
4. Require the credit to invite confirmation if you need it.
5. Quote with the fee built in, or quote two prices: confirmed and unconfirmed.
6. Set a fallback: part-advance, insurance or no shipment if confirmation is refused.

Common mistakes

• Treating confirmation as insurance against your own discrepancies. It covers complying presentations only.
• Accepting a confirmation by a bank inside the same country and assuming the transfer risk has gone.
• Signing a silent confirmation without reading the recourse and assignment terms.
• Asking about confirmation after the price is agreed and the credit is issued.
• Reading an OECD category or a sovereign rating as a bank's confirmation price.
• Shipping unconfirmed after every bank has declined, without repricing or restructuring.

Limits and what to recheck

This is general educational information, not banking or legal advice. It summarises public pages and does not reproduce UCP 600, which the ICC sells. Silent confirmation is governed by its own contract and by national law; the Greenhill decision is one Australian court's view. Transfer conditions change quickly and differ by country; this article names no market as high or low risk. Recheck current conditions with your bank's trade finance team, your export credit agency or insurer, and the relevant central bank's published rules. The IMF's Annual Report on Exchange Arrangements and Exchange Restrictions tracks each member country's foreign exchange system annually and is a starting point for the mechanism. IMF, AREAER

FAQ

What is the difference between a confirmed and an unconfirmed letter of credit? An unconfirmed credit carries only the issuing bank's undertaking. A confirmed credit adds a second bank's own undertaking to pay a complying presentation.

Who pays the confirmation charges on a letter of credit? Whoever the contract and the credit say. Agree it before quoting, build it into the price if it falls on you, and check that the credit's charges wording matches.

Does confirmation protect against a country's transfer restrictions? Usually, if the confirming bank is outside that country, the confirmation was added before presentation and your documents comply: the confirming bank pays you and waits for reimbursement itself. It remains subject to its own terms and to any sanctions or law that binds it.

Next step

Before fixing the price, identify the proposed issuing bank and country, ask your bank whether it will add confirmation and on what basis, then record who pays every confirmation, amendment and extension charge in both the sales contract and the credit application. If confirmation is refused, decide the fallback before shipment rather than after the documents are presented.

Resources

• ICC Academy — A guide to types of documentary credit (D. Meynell, 21 October 2024) — https://academy.iccwbo.org/trade-finance/article/types-of-documentary-credit-a-comprehensive-guide/ (accessed 10 October 2026)
• US International Trade Administration — Trade Finance Guide 2022 (PDF) — https://www.trade.gov/sites/default/files/2022-07/Trade_Finance_Guide_2022.pdf (accessed 10 October 2026)
• OECD — Country risk classification — https://www.oecd.org/en/topics/country-risk-classification.html (accessed 10 October 2026)
• International Chamber of Commerce — ICC Trade Register 2025 market commentary — https://iccwbo.org/wp-content/uploads/sites/3/2025/10/ICC-Market-Commentary_Trade-Register-2025.pdf (accessed 10 October 2026; ICC lists the 2026 report for October but no newer published report was found)
• Bank for International Settlements, Basel Committee — Treatment of trade finance under the Basel capital framework (October 2011) — https://www.bis.org/publ/bcbs205.pdf (accessed 23 September 2026)
• International Finance Corporation — Global Trade Finance Program — https://www.ifc.org/en/what-we-do/sector-expertise/trade-and-supply-chain-finance/global-trade-finance-program (accessed 10 October 2026)
• Export-Import Bank of the United States — Country Limitation Schedule — https://www.exim.gov/resources/country-limitation-schedule (accessed 10 October 2026; effective 30 July 2026)
• Export-Import Bank of the United States — Letter of Credit insurance — https://www.exim.gov/solutions/export-credit-insurance/letter-credit (accessed 10 October 2026)
• Export-Import Bank of the United States — To confirm or not to confirm (9 September 2021) — https://grow.exim.gov/blog/to-confirm-or-not-to-confirm (accessed 23 September 2026)
• UK Export Finance — Leading with finance: all products — https://www.gov.uk/government/publications/uk-export-finance-leading-with-finance-product-brochure/uk-export-finance-leading-with-finance-all-products (accessed 10 October 2026)
• International Monetary Fund — Annual Report on Exchange Arrangements and Exchange Restrictions — https://www.imf.org/en/publications/sprolls/annual-report-on-exchange-arrangements-and-exchange-restrictions (accessed 23 September 2026)
• Alan L Tyree — Silent confirmation of credits (legal commentary) — https://www2.austlii.edu.au/~alan/silent-confirm.html (accessed 23 September 2026)