Reimbursement undertaking is issued by reimbursing bank upon request of issuing bank, in favour of claiming bank (usually confirming bank) to honour that bank's reimbursement claim. So the undertaking is not against beneficiary. From benefciary's side, in my opinion, it is not essential to have such undertaking for his bankers.
However, in practise, banks who are reluctant to confirm an L/C due to country or issuing bank risk, may request such undertaking to eliminate such risks and secure reimbursement.
However, in practise, banks who are reluctant to confirm an L/C due to country or issuing bank risk, may request such undertaking to eliminate such risks and secure reimbursement.
Banks are generally required by beneficiary to add confirmation to the credit (if the same permits so) especially when the issuing bank is located in a country with a higher risk or the issuing bank has a poor rating .... But in this case it happens that the nominating bank not to have credit limit for taking risk on such issuing bank/country for confirming L/C.
Therefore the nominating bank would like to have the risk moved on another country (generally the country of reimbursing bank) to which it can take such limit. Not to mention that the reimbuseing bank when issuing such IRU is not concerned ultimately about the docs compliance, but only the compliance of the nominating bank claim.
.
As per article 1 of URR 725: In a bank-to-bank reimbursement subject to these rules, the reimbursing bank
acts on the instructions and under the authority of the issuing bank
Furthermore, art 2 states that:
Therefore the nominating bank would like to have the risk moved on another country (generally the country of reimbursing bank) to which it can take such limit. Not to mention that the reimbuseing bank when issuing such IRU is not concerned ultimately about the docs compliance, but only the compliance of the nominating bank claim.
.
As per article 1 of URR 725: In a bank-to-bank reimbursement subject to these rules, the reimbursing bank
acts on the instructions and under the authority of the issuing bank
Furthermore, art 2 states that:
Reimbursement undertaking” means a separate irrevocable undertaking of the reimbursing bank, issued upon the authorization or request of the issuing bank, to the claiming bank named in the reimbursement authorization, to honour that bank’s reimbursement claim, provided the terms and conditions of the reimbursement undertaking have been
complied with.
Therefore it goes that reimbursing bank cannot issue an IRU without the express instruction of the issuing bank.
