A Letter of Guarantee Facility issued by a bank is a written promise/ irrevocable obligations by the bank to compensate (pay a sum of money) to the beneficiary (local or foreign) in the event that the obligor fails to honor his/her/its obligations in accordance with the terms and conditions of the guarantee/agreement/contract.
The CBE may extend a one-time or renewable Letter of Guarantee Facilities:
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A one-time Letter of Guarantee Facility is a non-renewable letter of guarantee extended to applicants who have no recurrent requests.
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Renewable Letter of Guarantee Facility is a form of credit facility where the limit is renewed periodically when the customer fulfills the Bank’s requirement. The Bank may avail the facility to customers who have recurrent requests.
Any Letter of Guarantee Facility request shall require full collateral coverage.
Regarding the terms and conditions of the contract concluded between the beneficiary and the obligor, the Bank’s Attorney shall check the document to protect the interest of the Bank.
The facility shall be availed for one year but can be renewed every year unless the Bank demands it to be reviewed by the credit approving team for any remedial action when the performance of the account is deteriorating.
The Bank provides guarantee services to both local and foreign customers.
A foreign-currency permit from the NBE should, however, be obtained for any form of guarantee that the Bank is requested to issue in favour of foreign beneficiaries.
The duration (term) of any guarantee instrument will depend on the contractual agreement signed by the parties involved in the guarantee contract.
Clik here to read about the types of Letters of Guarantee.
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