Bank guaranteeWhat is a bank guarantee?
A guarantee is an irrevocable undertaking of a bank to ensure payment of a specified amount to the recipient of the guarantee (the beneficiary) if the party on whose request the guarantee if issued (the principal) does not fulfil its contractual obligations.
A bank guarantees payment of the amount stipulated by the bank guarantee to the beneficiary on its first demand, which complies with the guarantee terms.
The procedure for liaison between the parties regarding guarantees is regulated by the Uniform Rules for Demand Guarantees developed by the International Chamber of Commerce (ICC) in Paris, Publication No. 758, 2010 Revision (URDG758).
What types of bank guarantees can be issued by the bank?
Advance payment guarantee - secures refunding of the advance payment to the beneficiary in the event of non-performance of the contract terms by the principal.
Payment guarantee - secures performance of payment obligations of the principal to the beneficiary according to the contract terms.
Performance bond - .secures any claims by the beneficiary on the applicant arising from default in performance of the terms of the contract.
Tender / bid bond - secures performance of obligations of the bidder in conformity with the tender documentation.
What may be used as a collateral for the issue of a bank guarantee?
- a cash collateral
- a deposit
- another type of a collateral according to the credit policy of the bank
What is required to issue a guarantee?
The bank’s client must submit a completed guarantee application for issuance of a bank guarantee and a document which obligations the guarantee shall secure (a contract / tender documentation / or another document), place a cash collateral on the account or agree another form of a collateral with the bank.