To cope with global business policy and be a part of international business Bank Guarantee become a strong helping hand for the businessperson as well as the business organization. Today we are living in the era of technology that gives space to a person to know about the world within his/her own space.
Read Also: How to register for e-GP? E tendering process in Bangladesh.
In that case, one has to develop one’s product and business according to global demand. Bank Guarantee assists the businessman to mediate with the seller to ensure a good product within the margin period. Here we know about Bank Guarantee and Bank Guarantee process in our country.
What is Bank Guarantee?
A Bank guarantee is basically a written promise from a bank or any other financial institution to its customer/applicant/borrower that according to the contract between buyer and seller, if the seller fails to pay the committed product accordingly within the specified time, then the bank or the financial institution will pay the amount written in the bank Guarantee.
In a bank guarantee, there are a contract between 03(Three) parties and they include:
1. The applicant/Principal debtor/Account Party (Who requests a bank guarantee from the bank).
2. The beneficiary/Creditor-obligee (Who receives the guarantee).
3. The bank/Guarantor/Surety (Bank or Financial institution who agrees to sign and assures payment in case the applicant fails to keep the promise)
In an international Bank guarantee, there is another party named Instructing Party/ Counter Guarantee issuing Bank.
Present Sectors of Bank guarantee:
Some common sectors for issuing bank guarantees are:
1. To take part in a tender.
2. To keep promises according to contract.
3. To keep safe of advance payments.
4. To Discharge of retained finance.
5. To discharge products from customs.
6. For temporary bail from Government order/Court Order for discharging goods from Ship/Cargo.
7. To supply products.
8. Real estate business.
9. To take part in an international trade fair.
Kinds of Bank Guarantee:
There is no universal classification of Bank Guarantee. But in the case of Local and international business or buying and selling agreements generally Banks are practicing or providing the following types of Bank Guarantee;
1. Tender or Bid Guarantee.
2. Performance Guarantee.
a) Good Performance of Undertaking Guarantee
b) Good Performance of Job Guarantee
3. Shipping Guarantee.
4. Advance Payment Guarantee.
5. Return of Bond Deduction Guarantee.
6. Customs Guarantee.
7. Payment Undertaking Guarantee.
8. Deferred payment guarantee
Bank Guarantee (BG) Eligibility and Bank Guarantee process in Bangladesh:
Any person can apply for Bank Guarantee who has a good business and financial record. Bank Guarantee mostly applied by a business concern in the bank in which bank accounts are maintained in the name of Business concern. Once applied for the BG, the concerned bank will analyze the banking history of the concern, worthiness, liquidity, net-worth of the applicant.
Other Eligibilities are:
1. Must have a Bank Account in the name of a Concerned firm or himself.
2. Filled up bank guarantee form.
3. Flawless business record which satisfies bank management.
4. Security for Bank Guarantee i.e. FDR or other deposit, must have a value which is more than Bank Guarantee value.
5. Valid contractor license(s) and enlistment(s) with the Concerned Department(s) along with a copy of the Tender document in case of tender guarantee. And has to submit related documents to prove its worthiness for bid.
6. For performance guarantee you must have to submit NoA(Notification of Awards) from the competent authority.
7. Duly signed Purchase order (PO) or Proforma Invoice (PI) of the product for which Guarantee to be issued.
8. Buyer or seller details.
9. Liability position of the applicant must be satisfying the bank authority.
10. In some cases, depending on the risk level of the guarantee the bank may ask for collateral security to issue the guarantee. For collateral must provide documents associated with the collateral.
After meeting all these requirements and queries the bank will process for a bank guarantee or letter of guarantee. After completion of the process, the bank completed their related documentation and finally issued the guarantee.
Bank Guarantee Charges
Generally, banks receive commission for a period especially for a quarter or three months for a certain rate imposed by the bank which is mainly based on the risk assumed by the bank in each guarantee. The rate of BG commission may vary from bank to bank. But usually banks charge a value of 0.75% or 0.50% during the BG validity period along with stamp charge.
Apart from this, the bank may also charge the application processing fee, loan documentation fee, and site verification fee, Supervising fee and other charges imposed by the banks as well as government circulars.
Period of Bank Guarantee:
Usually, Banks are offering Bank Guarantee for not more than ten years which is renewable after every 01 year by paying bank charged commission. When the guarantee period is over, the guarantee should be canceled by the beneficiary.
For Tender guarantee, the maximum period will be for 120 days for each deal/drawing (i.e. from the date of issuance)
All banks are almost following the same procedure for issuing Bank Guarantee in favor of applicants choosing the seller.
Bank guarantees are usually used among business entities where banks act as guarantors which relieve a borrower from an investment of new capital. Which also helps to grow new business and increase overseas trade, export-import as well. Bank guarantees assist businesses or individuals as a financial advisor as well as creditor.
Sample Bank Guarantee format:
what is the reference of Bangladesh bank regulation for bank guarantee?