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Personal Banking
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A bank guarantee is the obligation of the bank to pay a party to the agreement (a recipient of a guarantee) compensation to the extent of the amount indicated in the guarantee if the other party to the agreement (applicant) does not perform its contractual duties. The bank cannot guarantee the recipient of the guarantee that the latter's counterparty will perform its obligations, but can only guarantee the payment to the extent of the guarantee amount. Bank guarantees give the recipient the security that if the operation indicated in the agreement is not performed for any reason, the recipient shall be entitled to monetary compensation.
According to risk, guarantees are divided as follows:
a) Bid Bonds A bid bond confirms commitment of the bidder to the contract tendered for. It is designed to ensure that the bidder if awarded a tender shall accept it and proceed to negotiate and execute the contract.
b) Performance Guarantee The aim of a performance guarantee is to guarantee compensation for the recipient of the guarantee if the counterparty does not perform its contractual obligations (for example, delivery of goods, performance of work, provision of services, etc.). The amount of a performance guarantee is agreed between the parties. The date of expiry of a guarantee is the due date of performance of contractual duties set forth in the agreement.
c) Advance Payment Guarantee An advance payment guarantee guarantees that an advance payment made to the applicant of the guarantee to the extent of a guarantee amount is returned to the recipient if the applicant of the guarantee fails to perform its contractual obligations (for example, does not deliver goods after receipt of the advance payment). The amount of an advance payment guarantee is the amount of the advance payment and the expiry date is usually the date of receipt of goods or provision of the service or other date or a certain number of days as of the due date.
d) Retention Money Bonds A portion of funds due to the contractor is retained by the awarding institution. This is meant to cater for correction of defaults after the contract is finished. (defects liability period is normally 6 months). The contractor can claim these funds and instead issue a bond.
e) Customs Guarantee These are issued to allow the importer to clear and sell goods then pay import duty after an agreed period of time. Personal / Corporate Guarantee These are issued by an individual or company accepting to be liable for borrowings by a third parties.
f) Shipping Guarantee Sometimes, goods may arrive before the importer gets shipping documents to enable him clear the goods. As a result, he will be exposed to a number of risks including: Demurrage charges, deterioration of quality of goods and possible loss of goods.
BANK OF AFRICA may issue a shipping guarantee to the shipper which enables the importer to access the goods.
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Commercial Banking
Complementary Services |
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All Rights Reserved. BANK OF AFRICA - UGANDA Ltd |
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