Guarantee Commission

Shahed · Post by **Shahed** » Mon Oct 31, 2011 12:00 am

Bank A is requested to issue a guarantee to expiry up to Nov 15, 2011 against a counter-guarantee of Bank B to expire up to Dec 15, 2011.

While calculatting the commission of the guarantee, Bank A calculate the commission period up to Dec 15, 2011 (the validity of the counter-guarantee, not the validity of the local guarantee).

Do you think this is the right practice ?

Shahed

GlennRansier_olsABN · Post by **GlennRansier_olsABN** » Mon Oct 31, 2011 12:00 am

Assuming that Bank A has issued it's local guarantee, it has committed to the beneficiary only until it the expiry date/period they provided in their guarantee. Generally they are only due a fee until that expiry. The counter-guarantee names Bank A as the beneficiary of the counter-guarantee and beneficiary's, as a standard banking practice are not entitled to collect fees. In short, Bank A should not be charging a fee until the expiry of the counter-guarantee.

HOANGTHIANHTHU_invalid · Post by **HOANGTHIANHTHU_invalid** » Tue Nov 01, 2011 12:00 am

Agreed with Glenn.

N.H.Duc

GSham · Post by **GSham** » Thu Nov 03, 2011 12:00 am

We need to understand the basis for charging the commission is to compensate the issuer for its obligation. The guarantee issuer is entitled to charge commission up to the expiration of its obligation, not somebody else's obligation.

Rgds, Gabriel

NigelHolt · Post by **NigelHolt** » Sat Nov 05, 2011 12:00 am

However, many banks charge other banks per quarter or part thereof, so unless the counter-guarantee expiry takes the charging into a new quarterly period it is fairly academic anyway.

EricLONGEPIERRE · Post by **EricLONGEPIERRE** » Tue Oct 16, 2012 1:00 am

Bank books contigent liability upto expiry of counter guarantee, it entitled bank to charges commission upto that date.