國際結算雙語chapter 9 bank guarantee

1、Letter of GuaranteeChapter 9 In bank guarantee transaction, importers and exporters enter into deal with the help of bank credit. Its difference from bank L/C is as follows;1.Its documents requirement is simpler than L/C and banks assume more risks in LG(=letter of guarantee). So, it is normally app

2、lied in the countries withcomparatively complete credit system.2. The applicant of L/C must be importer while the applicant of L/G can be buyer and seller, in which banks can offer guarantee for the payment of buyerand also for the performance of seller.3. All the L/Gs are on demand while L/C can be

3、 either at sight or at tenor. In the past, American Bank Law prohibitde bankers from offering bank guarantee, taking it as unfair to use savers money in providing guarantee forthird party. As bank guarantee is off-balance sheet transaction with relativelyhigh margin, American bankers innovate “ stan

4、dby LC”, which is LC in its forms and bank guarantee in its nature. Thus, standby LC can be either sight and at tenor, be negotiated, etc. just as in the case of L/C. But its documentrequirements is simple just as in the case of L/G.Definition:A bank guarantee is a written promise issued by a bank a

5、t the request of its customer, Buyer orSellerRequest = apply toBankerBuyer SellerorIssue a written promiseBeneficiariesundertaking to make payment to the beneficiary within the limits of astated sum of money in the event of default by principal.Difference between L/C and L/GLetter of GuaranteeLetter

6、 of Credit1. Documents are to evidence the performance of beneficiary1. Documents are to evidence non-performance (default) of applicant4. Applicant is always the buyer4. Applicants can be buyer or seller5. Beneficiary is always the seller5. Beneficiary can be seller or buyer2. Document requirement

7、is complex2. Document requirement simple3. Title document transport document is important3. Transport document is not important6. It can be demand or time payment- acceptance LC- deferred payment LC6. It can only be demand payment7. It is subject to UCP5007. It is subject to URDG458Flow chart of dir

8、ect guaranteePrincipal1.ApplyGuarantee Bank2.Letter of GuaranteeAdvisingBank 3.adviseBeneficiaryAdvising bank is correspondent of Guarantee Bank, whose duty is to check the authenticity of L/G and transmit documents between beneficiary and Guarantee Bank. 3When principal defaults, beneficiary submit

9、s documents required in L/G within validity of L/G. 44.documents8.pay5.Forward documents6.Notify to debit its a/c8.Credit advising banks a/cor authorize the latter to debit Guarantee Banks a/cGuarantee Bank pays against stipulated documents87.Counter indemnityFlow chart of indirect guarantee counter

10、 guaranteePrincipalInstructing Party /Counter guaranteeBank GuaranteeBankBeneficiarySometimes, beneficiary requires that L/Gbe issued by his own bank.1.Apply & authorize to open Counter Guarantee2.Counter guarantee askingGuarantee Bank to issue aL/G against counter guarantee3.L/GIf the principal

11、 defaults, beneficiary submitsdocuments to Guarantee Bank, asking forpayments. 44.documents Guarantee Bank examine document against L/G55.pay6.documentsCounter Guarantee Bank examines document against counter guarantee. 6,77.pay8.Notify to debit principalsa/cPoints to rememberPrincipal1.ApplyGuarant

12、ee Bank2.Letter of GuaranteeAdvisingBank 3.adviseBeneficiaryPrincipal must submit;-application in writing,-service commission,-security for payment under L/G, -other charges, e.g. cable/mail postage etc.Guarantee Bank must pay against required documents without the duty of investigation & collec

13、ting evidence (credit guarantee= primary duty of payment against documents, not fact), while in accessory guarantee, Guarantee Bank has to perform the duty of investigator.Advising Bank check apparentauthenticity of L/G & transmit the advice & documents betweenbeneficiary & Guarantee Ban

14、k. It can also confirm the L/G at therequest of Guarantee Bank. Draft can be drawn to ConfirmingBank if it has Guarantee Banks a/c.Confirming Bank Accessory guarantee = suretyship guarantee=Secondary duty of payment.Uniform Rule on Demand Guarantee, ICC Publication No.458Art. 1, these Rules apply to

15、 any demand guarantee and amendmentthereto which a Guarantor has been instructed to issue and which States that it is subject to the Uniform Rules for Demand Guaranteesof the International Chamber of Commerce (publication No. 458) andare binding on all parties thereto.Art.2 .b) Guarantees by their n

16、ature are separate transactions from the contract(s) or tender conditions on which they may be based, andGuarantor are in no way concerned with or bound by such contract(s) The duty of a Guarantor under a Guarantee is to pay the sumor sums therein stated on the presentation of a written demand forpa

17、yment and other documents specified in the Guarantee.Guarantee Bank is not in charge of investigating and collecting the evidence of defaults.Guarantee Bank pays against documents, not evidence of defaultindependenttransactionBid bondPurchaserTender invitationSellertendererTender / bidSeller bids wi

18、th L/G promising - not to withdraw tender before adjudication (opening sealed tender), - to accept contract awarded if winning bid, - to replace bid bond with performance bond after awarded contract.failing which, Guarantee Bank would pay a penalty to tender inviter ranging from 2% 5% of contract va

19、luesellertendererTender invitationTender / bidSellertendererTender invitationTender / bidApply for bid bondGuarantee Bank Bid bondsBeneficiary of the bid bondPerformance bondPurchaserSellertenderersellertendererSellertendererAward contract toIf he wins the tender, he must sign the contract with purc

20、haser and open a performance guarantee within prescribed time for purchaser.Apply for performance guaranteeGuarantee Bank Performance guarantee to replace bid bondThe guarantor undertakes to make payment to the beneficiarywithin the limit of a stated sum ofmoney in the event of default bythe supplie

21、r or the contractor indue performance of the terms ofa contract between the principaland the beneficiary.Beneficiary of performance guaranteeAdvance Payment BondSellerI need some working capital !Please pay me some in advance !BuyerI can pay you 10% in advance.Could you guarantee returningthem to me

22、 if you violate the contract ?I would ask my bank to guarantee the return if I violate contract terms.Apply for advance payment bondGuarantee Bank Advance Payment BondThe guaranteed amount is the amount of the advancepayment, which is, as a rule, automatically and proportionally reduced following ea

23、ch shipment, or reduced as work proceeds.Loan GuaranteeBorrower Foreign Lending BankDomestic Guarantee BankSeller1. Apply for loan2.Apply3.L/G guaranteeing the repayment of the loan4. Dispatch goods5.Pay with the loan7.Repay the loan under theguarantee if borrower defaults6.Repay the loan Leasing Gu

24、aranteeBuyer /Borrower /lesseeGuaranteeBankSeller /Exporter1.Leasing Contract2.Purchase Contract capital goods5. Dispatch goods6.Pay the contract valueLeasingBank3. Apply4. Leasing Guarantee:Undertake to pay for unpaidrent plus defaulted interest.7. Pay rent at the time agreed , e.g at 6-monthinterv

25、al.8. Pay rent plus defaultedinterest if lessee falls backOther kinds of L/GQuality GuaranteeMaintenance GuaranteeDeferred Payment GuaranteeCompensation GuaranteeProcessing GuaranteeAssembly GuaranteeLoan GuaranteeCustoms GuaranteeBail BondPayment GuaranteeYou can search on internet or in the textbo

26、oks of “International Settlement”in Chinese version if you have interest in them.Standby Letter of CreditIt is L/G in nature and letter of credit in formStandby letters of credit were initially developed becausebanks in USA had limited legal authority to issue guarantees. This restriction was based

27、on the view of US Regulatory authorities that issuing guarantees whichinvolves promising to perform someone elses obligationin the case of default is not a normal function of a commercial bank. Standby letters of credit avoided fallingfoul of this restriction because they were issued insteadof in th

28、e form of undertaking to pay a sum of money. Today, except under limited circumstances, the restriction on the issuance of guarantees no longer existsin the USA.Flow chart of Standby LCApplyBuyer or SellerApplicantIssuingBankStandby LC can be sight / acceptancepayment or negotiation. It can be confi

29、rmed at the request ofIssuing Bank.Advising BankAdviseSeller or BuyerBeneficiaryPayment / acceptance or negotiation is conditional upon: -the presentation of stipulated documents-provided that the terms and conditions ofcredit are complied with.Types of standby LC:-performance Standby, - advance Pay

30、ment standby-Bid Bond / Tender Bond Standby, - Counter Standby-Financial Standby, - Insurance Standby-Commercial Standby - Direct Pay StandbySigned statement of United Arab Pipelines Co. that Ewing Oil Company Inc. failed to perform itscontractual obligations under the agreement concluded on 30 June

31、, 2002 between Ewing Oil Company Inc. and United Arab Pipeline Co. in which Ewing Oil Company Inc. was the successful bidder.Special Conditions:It is agreed that we may be released from our liability under this Letter of Credit prior to the expiry date, only if we receive notification from Bank of N

32、ile by tested telex to the effect that Bank of Nile has been duly advised by United Arab Pipelines that the above agreement has been completely performed by Ewing Oil Company Inc. Bank of Nile is to advise the beneficiary adding its confirmation. We hereby authorize Bank of Nile to draw on us by mea

33、ns tested telex for the value of all drafts under this Credit, provided the telex states that all terms and conditions have been complied with. We hereby issue this Standby Credit in your favour, it is subject to ISP 98 For First Union Trust Bank of Dallas ll llTransshipment:allowednot allowedShipme

34、nt /dispatch/taking in charge from/ atFor transportation toCredit available with: Bank of Nile, Cairo, byPAYMENT ACCEPTANCE NEGOTIATIONAgainst presentation of the documents detailed hereinand beneficiarys draft at sight drawn onBank of Nile, CairoPartial shipmentsallowednot allowedAmount: USD1,000,0

35、00.00 (say US dollarsOne Million only)Advising Bank: Bank of Nile, CairoBeneficiary: United Arab Pipelines Co.,Farouk Palace Square, Alexandria, Egypt.Applicant: Ewing Oil Company Inc.2425 John Ross Avenue, Dallas, TexasIRREVOCABLE STANDBY CREDITDate and place of expiry: Cairo, 30 Nov.2002NAME OF IS

36、SUING BANK: First Union Trust Bank of Dallas, Place and date of issue : Dallas, 20 July, 2002Credit No.4567123Performance Standby creditComparison Between L/G and Standby Credit, L/GStandby LCSimilarity1、based on bankers credit standing, pay against stipulated documents2、Bankers take primary liabili

37、ty in the payment.3、Documents requirements are simple4、Separate from underlying contracts.Difference:1. Only at sight and can not be negotiated1. At sight or at tenor and can be negotiated2. Subject to URDG4582. Subject to Intl Standby Practice 19983. Accessory guarantee and independent guarantee3.

38、Only independent guaranteeMore difference can be found in URDG and ISP 98Mini case: Standby (1) Applicant1ApplyIssuing bankStandby Credit:1. Sight draft on issuing bank2. Copy of the unpaid commercial invoice3. Statement from the Beneficiarys authorized representative certifying that: - the enclosed

39、 invoices were at 30 days past due and - that payment had been demanded from the Applicant 2AdvisingBank 3adviseBeneficiary4 Inform: - no outstanding invoices were due to Beneficiary- issuing bank should not pay any drawings made under standby Credit Five days before the standby Credit expired, appl

40、icant informed issuing bank. Mini case: Standby (2) ApplicantIssuing bankAdvisingBank Beneficiary The day before Standby expired , Advising Bank presented via courier, on behalf of beneficiary, the following documents:1. Sight draft on issuing bank2. Copy of the unpaid commercial invoice undated, li

41、stingdelivery date of goods within 15 days of their presentation5docs7Courier the documents After examination of the documents, Issuing Bank paid the draft under LC by:- crediting the account of Advising Bank- debiting the account of Applicant 8Credit advice9Debitadvice6payObjected the paymentMini c

42、ase: Standby (3) ApplicantIssuing bank The applicant objected to the debit of his account eventhough he had already taken possession of the goods, stating that :1. Issuing bank had previously been informed by Applicantthat no outstanding invoices were due to Beneficiary and issuing bank should not honour any draft under LC.2. Issuing bank should have realized that, despite the fact that the statement of default as required by LC declared that a default condition by Applicant existed. it was clear that the delivery dates on the invoices signaled that there was no