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Reimbursement

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Tue, 08/31/2010 - 08:27
Jibs
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Can you someone please help differentiate between including a remibursing bank in a letter of credit and instructing a named bank to issue their reimbursement undertaking to another bank.

 

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Tue, 08/31/2010 - 09:48
#1
Abrar
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Reimbursing Bank

For both scenarios, the name of the reimbursing bank would have to be included in Field 53 of the MT700.

However, if the issuing bank has arranged with the reimbursing bank for the reimbursing bank to issue its separate reimbursement undertaking to the nominated bank, it would provide such information in Field 78.

Receipt of a reimbursement undertaking from the reimbursing bank, guarantees that any claims submitted to the reimbursing bank within the terms of the undertaking will be honoured by it, without any consideration of technical issues under the LC, nor receipt of funds from the issuing bank. So it becomes a quasi confirmation of the LC, and from the benefeciary's/negotiating bank's point of view, provides a separate financial recourse to that of the issuing bank. Settlement is made by the reimbursement bank on receipt of claim (sometimes against a certificate of compliance) and the negotiating bank sends documents direct to the issuing bank.

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Wed, 09/01/2010 - 03:51
#2
Jibs
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Reimbursing Bank

Many thanks Abrar for you response.

 However, i still require further clarification.

For instance, the applicant (my customer) has requested that the LC will available with and expire at the counter of a named bank. I will in turn insert a reimbursing bank and then send them an MT740, instructing them to honour the claim from that named bank.

This is different from making the LC available with and expire at the counter of an advising bank and then asking another bank to issue their IRU to this bank.

This is one difference I can point out. Can you help with any others?

 Regards

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Wed, 09/01/2010 - 05:03
#3
Abrar
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MT740

In the case of your requiring the reimbursing bank to issue its IRU, you would be required to request this in Field 72 of the MT740. So, the reimbursing bank as stated in field 53A of the MT700 would necessarily need to be the same as the party to whom the MT740 is issued. The issuing bank of the IRU and the nominated reimbursing bank should not be different.

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