- BANK GUARANTEE DEFINED
WHAT ADVANTAGES DOES A BANK GUARANTEE BRING YOU? - WHAT SERVICES DO WE OFFER IN THIS AREA?
- TYPES OF BANK GUARANTEES
- HOW TO OBTAIN A BANK GUARANTEE?
A bank guarantee is established by the bank’s written declaration in a letter of guarantee. It states that the bank will satisfy creditors up to a monetary amount defined in the contents of the letter of guarantee in the case that a third party (i.e. the debtor) fails to pay its defined liability or in the case of certain other terms and conditions stipulated in the letter of guarantee.
- Legal provision as per Sections 313 to 322 of the Commercial Code
- Uniform Rules for Demand Guarantees (International Chamber of Commerce Publication No. 458)
WHAT ADVANTAGES DOES A BANK GUARANTEE BRING YOU?
- A bank guarantee is a reliable security instrument in both international and domestic trade
- It provides security for various types of risk:
- limitation of risk related to your business partner’s potential insolvency or unwillingness to pay
- limitation of risk related to breach of contractual obligations
- security for risks even beyond the realm of trade and services (e.g. provision of “ready cash” in case of judicial bail, auction security and the like)
- limitation of risk related to your business partner’s potential insolvency or unwillingness to pay
- Cost savings
- Positive impact on your company’s cash flow
WHAT SERVICES DO WE OFFER IN THIS AREA?
We will help you to select the right type of guarantee (bid bond, advance payment guarantee, performance bond, payment guarantee, etc.) and prepare the wording of the guarantee while respecting the needs of your business partners as well as the rules and accepted practice applicable in the respective country.
In addition to issuing guarantees and counter guarantees, and to their advising, we offer issuing of guarantees upon the instruction of your business partner’s bank, while always taking into account the terms of the respective guarantee and in accordance with the credit rating and territory of the issuing bank.
We offer intermediation in fulfilling guarantees issued in behalf of our clients by a foreign or other local bank.
We also issue guarantee commitments.
We provide the types of bank guarantees described below, both domestically and internationally:
Direct guarantee
- The bank will issue a direct guarantee specifically in behalf of the beneficiary, thus establishing an immediate legal relationship between the guarantor bank and the beneficiary
- A direct guarantee is advantageous for you, both because you save some of your costs (as neither guarantee commission nor fees are charged for another bank abroad) and, even more importantly, because the guarantee is governed by Czech law unless otherwise expressly agreed in the text of the guarantee
Diagram of a direct guarantee
Indirect guarantee
- In the case of an indirect guarantee, another bank is involved. The principal’s bank will issue an indirect guarantee (a counter guarantee) made in behalf of the other bank, based upon which the latter will issue its guarantee in behalf of the beneficiary.
- In case the other bank’s guarantee is eventually used by the beneficiary, a counter-guarantee serves to provide security to the other bank that is based upon an irrevocable abstract commitment by the bank to pay a defined amount upon the first written demand of the other bank in case of performance under the guarantee.
- Indirect guarantees are mostly used in special territories (such as Arab countries), where local regulations prevent acceptance of guarantees issued by foreign banks.
Diagram of an indirect guarantee
Payment guarantees
- For payments
- For rent
- For excise taxes
- For tolls
- For loan payments
Non-payment guarantees
- For bids (bid bond)
- For contract performance (for proper performance of work)
- For retention (for securing a warranty period)
- For returning an advance payment
- Bond in behalf of the State Agricultural Intervention Fund
Custom bonds
HOW TO OBTAIN A BANK GUARANTEE?
- Contact your bank advisor or visit your nearest bank branch office, where you will be provided with basic information, including the Guarantee Issuance Instruction form.
- Along with the Guarantee Issuance Instruction form, you will need to submit additional supporting documents to permit:
- evaluating the economic risk of the client
- issuing a guarantee (such as a contract for work, terms of reference documents, etc.)
- A bank guarantee must be secured
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