Corporate Banking

Guarantee Services

Guarantee and similar contingent services are an important part of the contingent operations of a commercial bank. In this respect, the bank bears the guarantee obligations and might increase its own assets and liabilities realized. The guarantee-based products offered by the Bank to customers mainly include: letter of guarantee (L/G), standby letter of credit (L/C), loan commitment, and loan intent, etc. 

1. Letter of Guarantee (L/G)

(1) Product Definition

The letter of guarantee is a written undertaking of certain amount and period issued by a bank based on its own credit standing at the request of a party to a commercial deal, or a party to a contractual or economic relationship to the other party, guaranteeing the fulfillment of certain responsibilities or obligations under the deal by bearing certain payment responsibility or economic compensation responsibility. 

L/Gs offered by the Bank to customers include: loan guarantee, leasing guarantee, overdraft guarantee, tender guarantee, advance payment guarantee, project contracting guarantee, quality/maintenance guarantee, guarantee for maritime accident, customs guarantee, guarantee for compensation trade, litigation guarantee, guarantee for delivery, retention money guarantee, guarantee for assembly processing, and guarantee for securities issuance, etc. 

(2) Product Features

With the guarantee of bank credit, the L/G products offered by a bank are easy to be accepted by customers. 

(3) Application Procedures

To apply to the Bank for L/G, beside the guarantee acceptable to the Bank, a customer needs to provide the following documents: the application for L/G with chop affixed, background information for L/G, relevant format of L/G with chop affixed, recent financial statement and other relevant certifications. 

2. Stand-by Letter of Credit (L/C)

(1) Introduction of Functions 

A written payment guarantee issued by the bank at the request of a party (the applicant) to a commercial agreement to the other party (the beneficiary), with a view to guaranteeing that the applicant will perform obligations stipulated in the commercial agreement and when the applicant fails to perform such obligations, paying on behalf of the applicant to the beneficiary a specified amount of money against the documents and bills presented by the beneficiary which are consistent with the issued guarantee. 

(2) Features

The standby L/C is a separate document from the basic contract, and it is of the same force as that of the non-subordinate guarantee contract. 

(3) Application Procedures

To apply for a standby L/C with the Bank, besides the guarantee acceptable to the Bank, a customer needs to provide the following documents required include: application for L/C, background information for trading, recent financial statements, and other certifications. 

3. Loan Commitment and Loan Intent

(1) Product Definition

The loan commitment is an undertaking made by a bank to a customer that the bank will lend the latter a loan of agreed amount according to the agreed terms over a period in the future. Namely, it is a kind of off-sheet service for project construction in which the bank performs a further evaluation and demonstration on the project of the customer that has passed the feasibility study report in response to the application of the customer, and promises, on conditions that the project tallies with the bank’s loan orientation and meets the bank’s loan requirements, to offer a loan of specified amount and specified period to the customer within a specified valid period. 

The loan intent is the willingness indicated by a bank to grant a loan to a customer or a project under the condition that the customer or the project meets the requirements of the bank. Usually, it is an off-sheet service that the bank indicates to offer proposed loan support to project construction of the customer in the future based on a preliminary evaluation and demonstration on the project at the stage of project establishment on the precondition that the project tallies with the bank’s loan orientation and meets the bank’s loan requirements. 

(2) Product Features

Both loan commitment and loan intent are the proposed credit supports indicated by the bank to customers in the future, but there are strict differences between them. 

Different extent of commitment: The loan intent means that further preparations and negotiations on the loan agreement can be arranged, while the loan commitment means that an agreement has already been reached on terms of loan and main contract terms. 

Different issuing time: For a large project, the bank is usually required to issue the loan intent at the approval stage of project proposal and the loan commitment at the approval stage of feasibility study report. 

Different legal liability: The loan commitment is of legal binding force, so the bank must conduct evaluation over the loan in accordance with the examination procedure for a normal loan and enter into an official loan commitment agreement. Nonetheless, the loan intent is not of legal binding force. 

Different contents: the loan commitment consists of the committed amount, valid period of commitment, competent department for approval of loan, terms of loan and charges, while the loan intent doesn’t contain the loan amount and valid period. 

Different charges: for the loan commitment, the commitment fees are generally charged while no fee is charged for the loan intent. 

(3) Application Procedures

All corporations, public institutions and other economic entities that are established under law and have the full civil capacities can apply to the Bank for loan commitments or loan intents. The following documents are required for the application: letter of application, business license for corporation, duplicate of ID card of the legal representative, audited accounting statement of the last year and recent accounting statement, loan note (card), project proposal or feasibility study report approved by the competent authorities, relevant guarantee documents and other materials.