Confirmation Charges

Confirmation Charges refer to the fees collected by another bank (the confirming bank), other than the issuing bank, in international trade letter of credit (L/C) transactions, after it adds its confirmation to the L/C at the request of the issuing bank or the beneficiary. The confirming bank assumes the same payment liability as the issuing bank; therefore, the confirmation charge is essentially the risk consideration charged by the confirming bank for assuming an independent payment risk. Typical scenarios: the beneficiary has doubts about the issuing bank's creditworthiness or country risk, or the issuing bank's country has foreign exchange controls, political instability, etc., and requests confirmation to enhance payment security. Notes: confirmation charges are generally borne by the applicant (importer) or the beneficiary and must be clearly specified in the contract; once the confirming bank confirms, it cannot unilaterally withdraw; confirmation charges are usually calculated as a certain percentage of the L/C amount (e.g., 0.1%-0.5%) on a quarterly or annual basis, and may have a minimum charge. Unlike 'negotiation fees' or 'advising fees', confirmation charges correspond to an independent payment liability, not merely advising or negotiation services. In practice, if the issuing bank has a good reputation, the beneficiary usually does not need confirmation to save costs.