To SMEs Trade finance transactions Payment and performance guarantees

Payment and performance guarantees

Guarantees to secure payment/contractual obligations/return of advance payment.

Payment guarantees — refers to the obligation of the bank to pay an amount to the seller if the buyer violates the terms of the contract and/or defaults on the payment by the date as defined in the contract.

Performance guarantees – refers to the obligation of the bank to pay the buyer an agreed amount if the seller does not fulfil its contractual obligations.

Guarantees of return of an advance payment – refers to the obligation of the bank to re-pay the buyer the advance payment paid by the buyer under the contract in case of the seller’s failure to fulfil the conditions of the contract on the supply of goods/services or refusal or inability to return the advance payment received.

Advantages of bank guarantees:

The ability to get a payment deferral (commodity credit) for buyers from the counterparties.
Ability to ensure return of the advance payment for the buyer if the seller defaults on contractual commitments.
Minimising the risk of non-fulfilment of the contractual obligations by the counterparty.
A more cost-effective financial instrument in comparison with lending or factoring.

The main conditions for issuance of guarantees by Pivdenny Bank:

Requirements for clients under the guarantee:

business activity for at least 12 months.
stable financial position.

Maximum term of the guarantee – no more than the period foreseen for the performance of the contractual obligations which are safeguarded by the guarantee

Currency - UAH, USD, EUR.

Format in which the guarantee can be issued:

paper;
electronically, signed by EDS (electronic digital signature);
as a SWIFT message.

Collateral – balances in a coverage account or collateral in the form of: real estate; vehicles; goods in circulation; property rights to funds on deposit accounts, etc.

The bank makes decisions on guarantees within 5 working days from the moment of submission of the full package of documents to the bank by the client.

Bank payment guarantee/fulfilment of obligations:

Guarantee fee (counter-guarantee fee)

secured by cash on cover account – not charged; secured against proprietary rights to cash placed on a deposit account with a bank – not charged; unsecured – 5.0 % per annum; secured with other property – UAH 1,000

Changing or cancelling a guarantee or counter-guarantee (including its advising)

Increase of the amount or term – UAH 1,000; other changes – UAH 500.

Guarantees (counter-guarantees) in the foreign currency:

Guarantee (counter-guarantee)/guarantee letter of credit

0.2% of the amount (min USD 100 – max USD 1,000)

Consideration of payment request and payment under the guarantee (counter-guarantee)/guarantee letter of credit

0.2% of the request amount (min USD 100 – max USD 500)

Change of conditions or cancellation of guarantee (counter-guarantee) (including its notification)

Increase in the amount – 0.2% of the amount (min USD 100 – max USD 1,000); extension of the guarantee period (counter-guarantee)/guarantee letter of credit – USD 100; other changes – USD 50 (in UAH at the NBU exchange rate)