LC WITH MORE THAN ONE REIMBURSING BANK

GSHAM – Singapore
Posted 14 Jun 11

Have you come across an LC with more than one reimbursing bank, each issuing an irrevocable reimbursement undertaking for a share of the LC amount?

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JSMITH – United Kingdom
Posted 14 Jun 11 |

No.

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GSHAM – Singapore
Posted 14 Jun 11 |

Can an LC have more than one reimbursing bank? My opinion is yes. Whatever the reason, an LC can have more than one reimbursing bank. Say there is an LC for USD100,000, it can specify Bank A and Bank B as reimbursing banks, each for up to USD50,000 and on a pro-rated basis in the event of partial drawings. When there is a presentation for USD50,000, the claiming bank will claim reimbursement from Bank A and Bank B each for USD25,000.

For the same LC mentioned above, Bank A and Bank B can, at the authorization of the issuing bank, each issue an irrevocable reimbursement undertaking up to USD50,000.

Gabriel

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GLENNRANSIER – United States
Posted 14 Jun 11 |

I have issued a partial irrevocable undertaking in some rare instances. However, the claiming bank (through the issuer and the reimb. banks) was always aware that more than one irrev. undertaking was coming its way and understood that they had to provide multiple claims. It is the same operating principle as having multiple issuers of a single LC. When an amount is so large and/or a country or bank line is full, banks seek to share the risks and each participates for their set share.

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GSHAM – Singapore
Posted 15 Jun 11 |

But how can there be multiple issuers for a single LC? UCP seems to have been written on the basis of a single issuer. In a multiple issuers situation, say there are three issuers — Banks A, B and C — to which of these three banks will the nominated bank forward the presentation? Say the LC stipulates that a presentation is to be forwarded to Bank A, will Bank A's examination and determination of compliance bind Banks B and C? What if Bank A omits to refuse a discrepant presentation as per article 16, does it also preclude Banks B and C from dishonour? I would be most grateful, Glenn, if you could enlighten me …

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Duc N.H – Viet Nam
Posted 15 Jun 11 |

@ Gabriel: It is possible but quite messy with more than one reimbursing bank in a single L/C. I have not yet come across such a situation.

@ Glenn: It is quite messy, too, with a single L/C to be issued by more than one issuing bank. If there is more than one bank involved in a co-financing agreement, for the sake of simplicity, why don’t these banks agree to authorize one of them to issue L/C? We have ever done the same.

Regards,
Duc N.H

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GLENNRANSIER – United States
Posted 15 Jun 11 |

Generally in multi bank issuances one bank is designated as a lead bank for examination/payment purposes, etc. However, each bank signs only for their portion of the LC. There are always other ways and some are better than others but when clear and concise it generally does not cause a concern.