Bank Guaranty is a form of contract security, when the Bank guarantees the execution by its clients of the financial obligations owed to their counterparties. As a rule, the necessity for bank guarantees arises when counterparties are insufficiently aware of the solvency of each other and they want to limit their risks in a transaction.
Guarantees have high reliability and ensure the fulfillment of all obligations stipulated by the contract, from both parties. The bank guarantee, for today, is a well-functioning and, which is the most important, an operating tool that helps the parties to achieve maximum confidence in each other.
The Bank issues internal and international guarantees of the following general types:
- payment guarantee - ensures the seller's payment claim towards the buyer regarding buyer’s timely payment under the contract;
- guarantee of advance payment refund - ensures fulfillment of the buyer's requirements towards the seller in terms of advance payment in case if the seller does not fulfillment his obligations;
- tender guarantee - ensures receipt of monetary compensation by the customer (the tender organizer) in case of early withdrawal by tender participant or refusal of the winner of the tender to accept the order for execution;
- performance guarantee - ensures timely delivery of goods (services) (usually is set as 5-20% of the contract amount);
- loan repayment guarantee - guarantees repayment of the creditor's payment claims towards the debtor if the latter cannot fulfil his obligations.
- the guarantee ensures the fulfillment of all obligations stipulated by the contract, on both sides;
- the buyer is guaranteed to perform the financial obligations described in the contract;
- due to the bank guarantee, it is possible to receive a suppliers' credit from a counterparty, which is secured by the bank guarantee;
- there is a possibility to receive a delay in payment of the amount under the contract for the provided services and goods for which the guarantee was issued;
- the payment for the guarantee is usually less than the credit interest;
- receiving a high profit from an alternative usage of funds.
- Bank guarantees will be subject to the Uniform Rules for Guarantees on Demand, Publication No. 758 of the International Chamber of Commerce, Paris, edition 2010.
- The conclusion of a contract, which determines the procedure for issuing a bank guarantee, the terms of payment and the mutual responsibility of the parties is an obligatory condition when issuing a bank guarantee