Lending and Trade Finance
Bank guarantee
A bank guarantee is an instrument popular worldwide that secures payments or substitutes the cash deposit.
Fibank Cyprus offers its customers the opportunity to use the following services:
- Guarantees in favour of domestic and foreign beneficiaries who are the business partners of our customers;
- Counter-guarantees issued in favour of a foreign correspondent bank which issues its own guarantee to a foreign partner of our customer;
- Advising on a guarantee issued by foreign banks in favour of our customers;
- Making a demand under the guarantee accepted by our customer (beneficiary).
Types of guarantees
Payment guarantee
Payment guarantees are issued to secure the payment obligations of the buyer (importer) towards the seller. The exporter delivers the goods on the basis of a deferred payment, but his/her risk is secured by a bank guarantee. The importer has an opportunity to postpone the settlement for the delivered goods.
Advance payment guarantee
An advance payment guarantee is issued on the exporter’s (seller’s) request and secures any claims by the buyer against the seller for reimbursement of the buyer’s down payment in cases where the seller is in breach of its obligations to supply the goods under the contract.
Tender guarantee / bid bond
A tender guarantee is mainly used by tenderers under invitation to tender for a project. A tender guarantee substitutes the cash deposit.
Performance guarantee / bond
Performance guarantee is issued in order to secure proper delivery or performance under the terms of the contract. The most commonly performance guarantees are used in construction companies.
Guarantee for warranty obligations
A guarantee for warranty obligations secures any demand for payment against the manufacturer during the defects liability period.
Letter of credit (LC)
A letter of credit is an undertaking from the issuing bank to pay against a complying presentation in favour of the exporter. A letters of credit is a documentary payment form. The banks deal with the documentation and not the goods.
Operations related to the use of documentary letters of credit and documentary collections in the international settlements constitute one of Firbank’s lines of activity. The usage and combination of documentary forms of settlement make the payment conditions of foreign trade contracts more flexible, secure and convenient for trading partners.
Fibank Cyprus offers its clients the opportunity to make payments using LCs:
For importers:
Issuing of LCs by order of our clients-importers to provide payment in favour of exporter
Issuing of LCs to the foreign correspondent banks with a request for confirmation in favour of the foreign suppliers (exporters)
For exporters:
Advising on LCs to our clients (exporters)
Confirmation of LCs issued by foreign banks, incl. Russian banks
For intermediaries:
Opening of transferable LCs
Transfer of LCs
What type of LC does the supplier require?
When in buying goods you have a concluded commercial contract providing for an LC to secure the payment, you should ask the bank to issue an irrevocable confirmed or unconfirmed LC.
What collateral can you offer to the bank?
Considering that LCs are credit instruments, the bank assesses the customer from a credit risk viewpoint. Therefore, the bank asks for cash cover; otherwise, the client can apply for the opening of a credit line that can be secured by real estate, other assets of the company, third persons´ guarantees, etc.
LC opening
The client fills in a Documentary credit application and submits it with the copy of the commercial contract to the bank.
The application is examined. In the event of a positive decision, the LC is opened on a cover basis or on the account of the credit line facility.
Advising on LC
The bank advises on LCs to the customer without any liabilities on the bank´s part. Upon receiving of the LC the client (exporter) accepts the delivery according to the terms of the LC. The exporter submits the transport and other documents in strict conformance with the LC. The bank takes the documents, examines them and sends them by post to the issuing bank. The bank credits the exporter´s account with the proceeds received from the issuing bank.
Confirmation of export LC
Following the request of the issuing bank or the client, the bank may add its confirmation in addition to the obligations of the issuing bank. In this case, the exporter will accept the confirming bank´s, i.e. Fibank Cyprus ´s, risk and will receive payment from it in compliance with the terms of the LC.
Discounting of LC
In the event that there is LC with a deferred payment an exporter may apply to Fibank Cyprus asking to discount the LC, i.e. to make payment against documents before the specified date. Fibank Cyprus examines the request and informs the client about the decision. In the event of a positive decision, the bank stipulates the terms of the discount including the discount rate.
What type of guarantee do you need?
If a bank guarantee is required under the terms of a commercial contract or a tender invitation, you certainly need a payment guarantee or a tender guarantee.
Which bank shall issue the guarantee?
The guarantee can be issued by Fibank Cyprus or a foreign bank.
What type of security does the bank accept?
Since the guarantee is a credit instrument, the issuing bank evaluates the potential credit risk, and therefore asks for security. The bank accepts cash cover, assets of the companies pledged to the name of the bank, sureties, etc
How to apply for a guarantee?
1. The client fills in the Bank guarantee application form and submits it to the bank.
2. Upon a positive decision for the issuing of the requested guarantee, the Bank will ask the client to sign:
- Guarantee Agreement stipulating the terms and conditions on issuing of a guarantee
- Pledge Agreement
3. The Bank hands the Letter of Guarantee to the customer’s representative or transmits it to a foreign bank by SWIFT for further delivery to the beneficiary.
Counter-guarantees
Fibank Cyprus issues a counter-guarantee to a foreign correspondent bank asking to issue its own guarantee in favour of a foreign partner of our customer. Thus the foreign business partner receives the guarantee from his local bank. In the event case of a claim the beneficiary asks for the payment directly from his bank. In turn, Fibank Cyprus shall be responsible to the foreign bank under its counter-guarantee.
Advising on guarantees
Fibank Cyprus advises on guarantees issued by other banks without any obligations on its part. The bank also authenticates the document which is handed over to the customer. Upon the customer’s request the bank informs about the potential risks to the beneficiary and the procedure of claiming, if any.
Making a demand upon request of a beneficiary
At the request of the beneficiary Fibank Cyprus examines the terms of the guarantee and makes a demand via SWIFT to the issuing bank. In this case Fibank Cyprus is responsible only for the accuracy of the demand, but does not ensure the payment under the demand.
Documentary collections
Fibank Cyprus offers clients who are dealing with export and/or import of goods the opportunity to use documentary collection. Documentary collection is a documentary payment form widely used in international trade. The exporter´s bank by the order of the exporter sends the documents by post to the importer through his bank. The documents are issued to the importer against payment or acceptance of a bill of exchange. An exporter should know that the banks do not undertake the payment liabilities while dealing with documentary collections. Therefore, documentary collection is usually used between trusting partners.