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Bank Guarantees / Bank Pledges

Bank Guarantees / Bank Pledges

Bank acknowledgement for fulfillment of liabilities

  • Diminishes risk that is connected with fulfilling obligations of purchases / sale or providing services
  • It is simple to submit payment request
  • Operations are regulated by the International Chamber of Commerce regulations and normative documents of the Republic of Latvia

Exchange of goods and services in the international market is a rather complex and risky process: turnover of goods and financial resources takes place outside the borders of the country and often is connected with concerns, whether the buyers and the sellers are able to fulfill their commitments. SEB Bank Guarantee / Bank Pledge (as well as Letter of Credit or Documentary Collection) will diminish your company import or export transaction risks significantly and will provide guarantees for both exporters and importers of goods. In case of a Bank Guarantee, the bank undertakes to pay the recipient of the Guarantee a certain amount of money, if transaction partner, who has requested the bank to issue such a guarantee, has not fulfilled its obligations.

In which situations we recommend to companies to choose SEB bank Guarantee

  • If additional insurance is necessary / is required for concluding an agreement.
  • You as a seller are not sure about they ability to pay of the buyer.
  • You as a buyer are not sure that the seller will be able to deliver goods.
  • You can use Guarantee as an alternative, if for fulfilling transaction obligations additional insurance is required in the form of money / monetary insurance is required. The Guarantee will allow you to use free company financial resources that in another situation / otherwise would be "frozen" during the transaction. (For instance, tenders by local municipalities there is a requirement to pay a certain amount of money into the municipality account that serves as insurance for fulfilling obligations. In this case, if the rules of the tender allow that, it is more beneficial for you to use the bank Guarantee.

What is secured by the Guarantee

Bank guarantee is bank's irrevocable commitment to pay to the recipient of the Guarantee (third party) money up to the maximum amount set in the Guarantee, if the requestor of the Guarantee does not fulfill its obligations. Fulfillment of obligations is first required from the requestor of the Guarantee, and the Guarantee is to be used only if the requestor is not fulfilling obligations. In this case the bank, based on the issued Guarantee, pays out the agreed amount to the recipient of the Guarantee (third party) immediately.

In case of bank pledge the bank makes the payment if in addition to request from Guarantee recipient it has also received Guarantee requestors consent or a court ruling that such a payment must be made. In case of the first request the bank makes a payment, if Guarantee recipient has submitted the first written request that corresponds to the conditions of the Guarantee.

The bank can issue Guarantee for a variety of commitments, for instance, for fulfillment of tender offer, payment or pre-payment, for payment of fulfilling agreement conditions, advance payment, loan, rental commitments, tax return etc. The smallest SEB bank issued international guarantee amount has been 30 EUR.

Guarantees are fully independent transaction from agreements or offers that they are based on or that are mentioned in the Guarantee – all sides involved in the Guarantee are operating only with documents, not with respective transaction goods or services. Guarantees are a secure and internationally recognized means – its operations are regulated by rules of International Chamber of Commerce "On request guarantees" (URDG 758) and respective normative documents of the Republic of Latvia.

For diminishing transaction risks you can also choose to use other SEB bank services – Letter of Credit or Documentary Collection. From the three mentioned services the most often used is a Pledge.

Read more about a Letter of Credit

Read more about Documentary Collection

Comparison of Letter of Credit, Bank Guarantee and Documentary Collection

Documentary Collection

Letter of Credit

Bank Guarantee /Pledge

Type of payment

Type of payment

Instrument for limiting risk

Payment for trading documents

Payment for trading documents

Takes place without making a payment

Documents are not returned to the buyer without payment or pledge to pay for goods within a certain time frame

Documents are not returned to the buyer without payment or pledge to pay for goods within a certain time frame

Documents can be requested only in case of guarantee payment

 

Bank does not have a commitment to pay

Bank has a commitment to pay

Bank has a commitment to pay

 

Most often used are Payment guarantee and Tender guarantee but the bank can issue Guarantees for fulfillment of different types of agreement obligations (for instance, payment, advance payment, agreement fulfillment, guarantee term, credit obligations, rent agreement obligations, tax re-payment obligations etc.).

  • Bid, tender guarantee (bond) secures that the organizer of an open competition (buyer) will receive a set amount of money from the bank, if the winner of the competition will recall its offer or will refuse to sign an agreement.
  • Advance payment guarantee – in this case you as a buyer will receive advance payment, if transaction partner (recipient of advance payment) will not fulfill the conditions of the agreement – delivery of goods or services will not take place.
  • Payment guarantee guarantees to you as a seller that the bank will pay for goods / services in case, if buyer of goods / receiver of services will not make payment in accordance with contract conditions and in the term set in the contract.
  • Performance guarantee, performance bond recipient gets guaranteed re-payment from the agreement value, if any of agreement requirements is not fulfilled.
  • Warranty bond – in the case of warranty bond the bank guarantees penalty payment to the buyer / recipient of service, if the quality of goods or equipment or quality of services provided does not correspond to the conditions of the agreement. The bank guarantee will cover the costs to the buyer / recipient of service, that have occurred as a result of repairing defects during the guarantee term.
  • Credit guarantee will secure to the lender the repayment of debt, including interest payments and commission fees.
  • State Revenue Service pledge has various types – Transit pledge, as well as tax re-payment pledge.
  • Stand-by Letter of Credit can also be considered as a guarantee. It is a bank guarantee issued in a form of Letter of Credit that operates in accordance with internationally accepted rules of operation for Letters of Credit. Similarly to a bank guaranty, Stand-by letter of credit is not a form of payment, but a guarantee document confirming that the seller will receive payment, if the buyer will not fulfill its obligations mentioned in the Letter of Credit. Most often Letter of Credit is used for transactions with the United States, where it serves as an alternative to a bank guarantee. AS "SEB bank" considers Stand-by letter of credit a type of bank service. Read more about Letters of Credit

Possible types of security arrangement

  • Money deposit at a bank;
  • Blocked funds in client's current account;
  • Counter-guarantee issued by another credit organization;
  • Real estate mortgage;
  • Commercial actives pledge;
  • Other type of security arrangement that does not contradict with crediting policy and laws of the Republic of Latvia.

A payment example is described below

  1. Buyer and seller conclude a purchase-sales agreement, in which they agree that buyers payment commitments are guaranteed by the bank Guarantee.

  2. Buyer submits Guarantee request on behalf of seller in the bank.

  3. Buyer's bank issues Letter of Guarantee and mails or delivers it electronically to the seller's bank. If the buyer chooses a Guarantee corresponding to local legislation and in local language, the buyer's bank issues its counter-guarantee to the sellers bank, and after it has been received, the sellers bank, in accordance with buyer's bank conditions will issue to the seller Letter of Guarantee

  4. Seller in accordance with the agreement, sends goods to the buyer, and submits to the buyer necessary documents and requests to make a payment in the term stated in the agreement.

  5. If buyer pays to the seller on the term agreed, the Guarantee is not used.

  6. If buyer does not pay to the seller on time, seller, based on Guarantee, submits a written request to the bank to pay the amount that has not been paid by the buyer.

  7. Buyers bank checks the request and pays the respective amount to the seller.

  8. Buyer's bank informs buyer about the submitted request. Buyer pays the set amount to its bank.

Services Fees
Guarantee line1
Processing a guarantee line, increasing the limit 0,5%, min 150.00 EUR
Term prolongation for a guarantee line 0,2%, min 150.00 EUR
Other changes to the guarantee line agreement upon the customer's request 0,5%, min 50.00 EUR

Guarantees/International guarantees/Stand-by letters of credit

Issuance of Guarantee/Stand-by letter of credit:
   •  type of collateral: cash cover in SEB bank 0,3%, min 120.00 EUR
   •  within the scope of the Guarantee line By agreement, min 70.00 EUR
   •  another collateral 1%, min 190.00 EUR
Extra commissions charged for issuance of a Guarantee/Stand-by letter of credit:
   •  issuance of the Guarantee in accordance with the template provided by the customer 15.00 EUR
   •  urgent issuance of a Guarantee within 8 working hours2 70.00 EUR
   •  processing of a non-standard Guarantee template and the approval thereof By agreement, min 70.00 EUR
Guarantee utilisation fee (depending on the type of collateral):
   •  type of collateral: cash cover in SEB bank Min 1% per year, min 35.00 EUR
   •  another collateral By agreement
Amendment/cancellation of a Guarantee upon the customer’s request 70.00 EUR
Notification of a Guarantee/Stand-by letter of credit issued by another bank 85.00 EUR
Notification changes to a Guarantee/Stand-by letter of credit issued by another bank 70.00 EUR
Verification of the authenticity of a Guarantee issued by another bank upon the customer’s request 30.00 EUR
Processing/certifying the signatures/forwarding the claim on behalf of the customer3 0,2%, min 145.00 EUR
Payment of a received claim 0,25%, min 145.00 EUR

Confirmations

Confirmation of issuance of a guarantee 70.00 EUR
A certificate of the possible issuance of a guarantee 30.00 EUR
Changes to the provisions of the confirmation at the customer's request 30.00 EUR

Additional services

Processing and forwarding information of financial transactions on behalf of the customer 15.00 EUR
Authorisation to receive goods addressed to the bank 70.00 EUR
Costs of courier services Actual costs
Commissions charged by correspondent and cooperation banks Actual costs
Verification of counterparties involved into deal (applicable for deals with high risk countries)4 45.00 EUR

 


 

1 The commission fee must be paid on the day the agreement or amendments are signed.

2 Subject to the decision made by SEB bank and concluding the relevant agreement with the customer. The standard term for issuing a Guarantee is laid down in the Terms and Conditions of the Guarantee.

3 Application for processing and sending a claim should be submitted to SEB bank at least 3 business days prior to the Guarantee expiry date.

4 In accordance with the bank’s related internal and external regulations at the moment of verification.

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