Reimbursing bank

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Reimbursing bank
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Reimbursing bank - the bank named in a documentary credit (letter of credit) from which the paying, accepting or negotiating bank may request cover after receipt of the documents in compliance, with the documentary credit. The reimbursing bank is often, but not always, the issuing bank. If the reimbursing bank is not the issuing bank, it does not have a commitment to pay unless it has confirmed the reimbursement instruction. The issuing bank is not released from its commitment to pay trough the nomination of a reimbursing bank. If cover from the reimbursing bank should not arrive in time, the issuing bank is obliged to pay (also any accrued interest on arrears)[1].

Bank-to-bank reimbursement arrangements

There are several Bank-to-bank reimbursement arrangements[2][3]:

  1. If a credit states that reimbursement is to be obtained by a nominated bank ('claiming bank') claiming on another party ('reimbursing bank'), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursement is effect on the date of issuance of the credit.
  2. An issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand.
  3. If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply:
  • an issuing bank must provide a reimbursing bank with a reimbursement authorization that conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date
  • a claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit
  • an issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit
  • a reimbursing bank's charges are for the account of the issuing bank

Parties to the Letter of Credit

There are several parties to the letter of credit, which are summarized below[4]: There are several parties to the letter of credit, which are summarized below:

  1. Applicant- the buyer/importer of goods. This person has to make payment of the letter of credit to the issuing bank if the documents are in accordance with the terms and conditions of he LC.
  2. Issuing bank- the importer's or buyer's bank, which lends its name or credit, is the issuing bank. This bank gets five days to check the documents.
  3. Advising bank- the issuing bank branch or correspondent in the exporter's country, to whom the letter of credit is sent for onward transmission to the seller or beneficiary, after authentication of genuineness of the credit, is the advising bank.
  4. Beneficiary- the party to whom the credit is addressed, i.e. the seller, the exporter or the supplier of the goods is the beneficiary.
  5. Negotiating bank- the bank to which the beneficiary presents the documents for negotiation is the negotiating bank. It claims payment from the reimbursing bank or opening bank and gets five banking days to check the documents.
  6. Reimbursing bank- is the third bank; t repays, settles or funds the negotiating bank at the request of its principal, the issuing bank.
  7. Confirming bank- this bank adds confirmation to the credit; it undertakes the responsibility of payment by the issuing bank ad on its failure to pay the confirmation, is added on request of the opening bank.

Footnotes

  1. E.G. Hinkelman 2010, p.143
  2. F. Rose 2015, p.692
  3. K.W. Luk 2011, p.284
  4. R.K.Gupta, H. Gupta 2019, p.231

References

Author: Karolina Morga