Introduction
Upon receipt of a letter of guarantee from a foreign bank, the customer designates Bank of China as the reissuing bank to issue different forms of letter of guarantee with the customer as the beneficiary. The reissuing of letter of guarantee enables to better protect the customer's interests, prevent foreign exchange rate risks and make enquiries and claims more convenient and easier.
Features
1. Acquire guarantee from local bank to eliminate the cross-border communication barriers;
2. Avoid credit risks of foreign banks;
3. Prevent foreign exchange rate risks to a certain extent.
Application Qualifications
1. Domestic and foreign correspondent banks have established correspondent relationship with Bank of China;
2. The applicant shall maintain good credit standing without any bad record;
3. The applicant shall possess real relationship of transactions that meets Bank of China's requirements on business compliance;
4. The applicant shall provide a completed letter of counter-guarantee with clear instruction which covers Bank of China's interests.
Process
1. The correspondent bank or the affiliated bank submits an application;
2. Bank of China examines the documents and issues the letter of guarantee;
3. Bank of China charges the guarantee fees;
4. Bank of China amends the letter of guarantee;
5. Bank of China makes compensation against the letter of guarantee or cancels the letter of guarantee.
Case
Company C was an export company, most of whose export destinations were the countries with high payment risks. Due to the global financial crisis and the deterioration of the international economic situation, Company C became increasingly worried about the safety of remittance collection. Company C had accepted the payment guarantee issued directly by the foreign banks to reduce costs, but Company C was doubtful about the guarantee ability of the foreign banks. In order to mitigate the credit risks of foreign banks, Company C decided not to accept the letter of guarantee from the foreign banks directly, but to require Bank of China to reissue the letter of guarantee to it, so as to transfer the risks of the foreign banks. Company C also knew that Bank of China can reissue most of the letter of guarantee of the foreign banks, thus Company C will no longer be worried about the payment risks of the foreign banks, and will only need to make claim against Bank of China as the guarantor if necessary. This method had increased the financial costs but it was worthwhile.
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