Demand Bank Guarantees
A bank guarantee provides a monetary sum to the beneficiary on demand in the event of either payment or commercial default by the applicant. The fundamentals of demand guarantees are explained, describing them as a document-based mechanism for demanding payment, not an investigative one. They provide a like function to standby credits. The types and operation of direct and indirect trade-related guarantees are described. The risk considerations of issuing a guarantee, a counter guarantee, and a ‘primary’ guarantee on behalf of an instructing bank (counter guarantor) are considered, together with a description of structure and clause example wordings. The implications of ‘extend or pay’ notices, foreign law and usage, and transferable guarantees are explained. The options for cancellation are considered once the expiry date has passed.