Guarantee By Bank
Product definition
A guarantee is a written undertaking wherein the bank agrees to make stipulated payments on a client’s behalf should they fail to fulfill or carry out specified terms of a contract.
Guarantees may also be issued in respect of the purchase of fixed property.
There are three basic types of guarantees by bank:
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Performance guarantees
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Bonds
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Indemnities
Purpose
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Allows a customer to avoid paying in advance or lodging cash cover to secure a purchase or contract.
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Enables a customer to bid for contracts that call for guarantees
Period and Repayment
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Up to 12 months reviewable annually for formalized revolving limits
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One-off facilities period will be determined by the terms of contract and guarantee expiry dates
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No fixed term is set for a performance bond. Guarantees may be continuing or for a specified period. At all times a definite or determined expiry date or a clause specifying a period of notice or withdrawal is to be included in the guarantee.
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On receipt by the Bank of a request for payment of a performance bond, the customer’s current account is to be debited with the full amount due. The customer is to be immediately advised of the payment. Unless there are pre-existing arrangements in place to pay the exposure resulting from the payment of the performance bond, the customer is to be requested to immediately conclude arrangements to repay the exposure.
Benefits to the customer
The benefits to the customer are:
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If cash cover is lodged with the Bank under a pledge the client will be paid interest on the investment,
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Enables the client to bid for contracts which call for guarantees,
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Enables the client to purchase fixed property.
