Chapter 6 专业 PPT/ 商演示设计制作 Payment Methods - Bank guarantee and standby credit

Review Question 1 : What’s the meaning of letter of credit? Question 2 : Types of letter of credit ? Question 3 : Advantages and risks under L/C

Why we need the bank guarantee ? In the international trade and financial transaction Buyer SellerBanker Please provide security for my performance of contract to buyer ! Please provide security for my payment to seller ! Banker’s guarantee

What is the bank guarantee?  A bank guarantee is a written promise issued by a bank at the request of its customer, undertaking to make payment to the beneficiary within the limits of a stated sum of money in the event of default by principal.

Basic parties to a bank guarantee  Applicant -- the party that requests a bank to issue a bank guarantee.  Beneficiary -- the party in whose favor a bank guarantee is opened and who has the right to claim for compensation in accordance with the terms and conditions of the guarantee  guarantor -- the bank that issues a letter of guarantee at the re4quest of tis customer.  Advising or transmitting bank -- a bank in the beneficiary’s place that notifies or transmits the guarantee to the beneficiary.

Flow chart of direct guarantee Applicant Guarantor Beneficiary Transmitting bank application issue notify Claims for payment Claims for reimbursement Underlying contract

Procedure of direct guarantee  The applicant applies for the opening of an L/G  application or agreement ；  evaluation of related transaction or project ；  collateral or counter guarantee  The guarantor bank issues a L/G ： direct /indirect  Claims and payments  The guarantor bank claims for reimbursement from the applicant and the counter guarantor  Cancellation of a L/G

Preview Think about the difference between L/C and L/G?

Types of guarntees  Bid Bond -- Seller bids with 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 value  Performance guarantee -- The guarantor undertakes to make payment to the beneficiary within the limit of a stated sum of money in the event of default by the supplier or the contractor in due performance of the terms of a contract between the principal and the beneficiary.

Types of Guarantee  Advance payment Bond -- The guaranteed amount is the amount of the advance payment, which is, as a rule, automatically and proportionally reduced following each shipment, or reduced as work proceeds. What kind of risk will be faced by bank under bank guarantee?

What is a standby letter of credit  Standby letter of credit means an issuer on behalf of an applicant that represents an obligation to the beneficiary, pursuant to a complying presentation: -- to repay money borrowed by, advanced to, for the account of the applicant; or -- to make payment on account of any indebtedness undertaken by the applicant ； or -- to make payment on account of any default by the applicant in the performance of an obligation.

Flow chart of a standby L/C Issuing Bank Standby LC can be sight / acceptance payment or negotiation. It can be confirmed at the request of Issuing Bank. Advising Bank Advise Seller or Buyer Beneficiary Payment / acceptance or negotiation is conditional upon: -the presentation of stipulated documents -provided that the terms and conditions of credit are complied with. Types of standby LC: -performance Standby, - advance Payment standby -Bid Bond / Tender Bond Standby, - Counter Standby -Financial Standby, - Insurance Standby -Commercial Standby - Direct Pay Standby Apply Buyer or Seller Applicant

Types of a standby L/C  Performance Standby  Advance Payment Standby  Bid Bond/Tender Bond Standby  Counter Standby  Financial Standby  Direct Pay Standby  Insurance Standby  Commercial Standby

Difference Between L/G and Standby Credit Only at sight and can not be negotiated Accessory guarantee and independent guarantee At sight or at tenor and can be negotiated Only independent guarantee  Similarity: based on banker’s credit standing, pay against stipulated documents Bankers take primary liability in the payment Documents requirements are simple Separate from underlying contracts Bank Guarantee Standby Credit

Preview Compare the differences among L/C, L/G and Standby L/C? Think about the importance of documents in settlement?

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