INSURANCE OF BANK GUARANTEES ISSUED FOR THE PURPOSE OF WINNING OR PERFORMING EXPORT CONTRACTS

Exporters are often confronted with the need for first-class bank guarantees issued in favour of their foreign buyers as a condition for entering into export contracts or insuring performance of their contractual obligations. Consequently, they are exposed to the risk of a guarantee being called irrespective of the performance of their contractual obligations. In addition, they are exposed to various political risks that may prevent them from performing a contract and lead to the collection of payments under a guarantee.

The Programme for the Insurance of Bank Guarantees Issued for the Purpose of Winning or Performing Export Contracts enables banks to insure the risk of payment under a guarantee owing to an unfair calling by a guarantee beneficiary despite due fulfilment of obligations on the part of an exporter, owing to a political risk preventing due fulfilment of obligations on the part of an exporter or owing to a fair calling due to exporter’s non-fulfilment of export contract or tender obligations being the exclusive responsibility of the exporter.

Insurance scheme

1. Exporter enters into export contract with buyer
2. Bank issues guarantee in favour of buyer on instructions made by exporter
3. Bank and exporter enter into insurance contract with HBOR
4. Buyer collects payment under guarantee
5. HBOR pays indemnity to bank after 60 days of the waiting period
6. HBOR is entitled to recourse against exporter in case of risk of fair calling
7. HBOR is entitled to recourse against buyer or third parties in case of risk of unfair calling.