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Trade finance
Guarantee

Guarantee

A Bank guarantee is a standalone unconditional written commitment of the Bank as requested by its customer (Applicant), under which the Bank will be obliged to pay the guarantee amount to the Beneficiary upon their request if it complies with the guarantee terms and conditions.
Typically, Bank guarantees are regulated by rules of URDG 758 approved by the International Chamber of Commerce (ICC), unless otherwise provided for by the bank guarantee.

Main Types of Bank Guarantees

Advance Payment Guarantees

An advance payment guarantee is issued in cases when the Buyer makes an upfront payment to the Seller prior to the supply of goods or delivery of services.
The guarantee will ensure the refund of the advance payment to the principal if the beneficiary fails to deliver goods or services as per the contract.

Performance Guarantee

(Performance Guarantee / Performance Bond)
A performance guarantee is issued by the Bank in order to ensure proper fulfillment of contractual obligations.
The Bank will promise to pay the guarantee amount to the beneficiary if the Applicant fails to duly fulfill their obligations under the contract.

Tender/Bid Guarantee

A tender/bid guarantee is issued by the Bank to assure the project owners that the bidder will fulfill their obligations if awarded a contract, as well as confirm the Bidder’s qualification, and advance payment promise.

Payment Guarantee

A payment guarantee is used in open account transactions.
The payment guarantee ensures the payment to the beneficiary if the applicant fails to fulfill the payment obligations under the contract.

Customs Guarantees

Customs guarantees are issued in favor of customs authorities ensuring payment of customs duties, taxes and other charges in line with the customs legislation.
Customs guarantees may be regulated both by the national legislation and relevant international rules.

Standby Letters of Credit - SBLC

A standby letter of credit is a payment instrument which functions similarly to a bank guarantee as a secondary assurance.
Typically, a letter of credit is regulated under ICC ISP98 or UCP 600 rules and used in cases when the issuance of a bank guarantee is limited from legal or operational perspective.
SBLC-based payment will be made only if the beneficiary submits a relevant demand which complies with the guarantee terms and conditions.

Bank Guarantee advantages

Reduction of commercial and financial risks,
Ensuring sound implementation of transactions,
Deferred payment opportunity,
Enhancement of long-term stable cooperation between partners,
More flexible and cost-effective instrument in comparison with a credit facility.

Terms and Conditions of Bank Guarantees

USEFUL INFORMATION

International Bank Guarantees

1.	Currency	US dollars, Euros, Russian rubles or other currencies acceptable to the Bank
2.	Maximum amount	Subject to contractual terms and conditions
3.	Guarantee period	Subject to contractual terms and conditions
4.	Guarantee issuance and/or approval (annual)	Subject to contractual terms and conditions
5.	Guarantee alteration (including extension)	0.15%, minimum AMD 50,000
6.	Guarantee letter	0.15%, minimum AMD 50,000
7.	Payment under the guarantee issued and/or approved by the Bank	0.5%, minimum AMD 50,000
8.	Guarantee revocation	AMD 50,000

Local Bank Guarantees

1.	Currency	Armenian drams or other currencies
2.	Maximum amount	Subject to contractual terms and conditions
3.	Guarantee period	Up to 60 months
4.	Chargeable fees	For guarantees issued to legal entities and sole proprietors – if the fee to be charged for the entire or actual guarantee period does not exceed AMD 20,000, the principal will pay AMD 20,000 in a lump-sum.
5.	Guarantee modifications	AMD 15 000
6.	Annual interest rate on liabilities secured by cash	1-3%
7.	Annual interest rate on liabilities secured by other assets	2-6%
8.	Cancellation	AMD 25 000
9.	Claim payment	0.5%, minimum AMD 50,000
10.	Cases when a guarantee becomes a loan	No more than the double settlement interest rate established by the RA Central Bank.

Bank Guarantees Secured by High-Ranking Assets, without Creditworthiness Assessment

1.	Currency	Armenian drams or other currencies
2.	Maximum amount	Subject to contractual terms and conditions
3.	Guarantee period	Up to 60 months
4.	Security	Cash balance (in deposit or current accounts, as well as bonds issued by the Bank or the Government)
5.	Chargeable fees	For guarantees issued to legal entities and sole proprietors – if the fee to be charged for the entire or actual guarantee period does not exceed AMD 20,000, the principal will pay AMD 20,000 in a lump-sum.
6.	Guarantee modifications	AMD 15 000
7.	Annual interest rate	1-3%
8.	Cancellation	AMD 25 000
9.	Claim payment	0.5%, minimum AMD 50,000
10.	Cases when a guarantee becomes a loan	No more than the double settlement interest rate established by the RA Central Bank.

Bank Guarantees Secured by Cash Flows, without Creditworthiness Assessment

1.	Currency	Armenian drams or other currencies
2.	Maximum amount	The guarantee amount must not exceed 50% of the net turnover for the past 12 months using all the accounts with EVOCABANK OJSC. Tax returns for the same period will be reconciled and minimum amounts picked as more realistic data.
3.	Guarantee period	Up to 24 months
4.	Borrower and surety requirements	RA resident legal entities, sole proprietors Absence of overdue liabilities (including those related to issued guarantees). At the time of applying for the guarantee, absence of classified liabilities. Absence of classified credit liabilities for the past 12 months, the total number of delayed payments must not exceed 30 days, while a single delayed payment must not exceed 15 days. Absence of overdue tax liabilities and fines, Personal surety bonds issued by the founder and/or beneficial owner.
5.	Security	Cash turnover using the accounts with EVOCABANK OJSC
6.	Annual interest rate	3-6%
7.	Cancellation	AMD 25 000
8.	Claim payment	0.5%, minimum AMD 50,000
9.	Cases when a guarantee becomes a loan	Double settlement interest rate established by the RA Central Bank.

Bank Guarantees Secured by Real Property

1.	Currency	Armenian drams or other currencies
2.	Maximum amount	Twice the liquidation value of the real property
3.	Guarantee period	Up to 60 months
4.	Borrower and surety requirements	RA resident legal entities, sole proprietors The customer must have at least a 2-year experience of guarantee-related cooperation with government authorities (at least one contract for each year), At the time of applying for the guarantee, absence of overdue or classified liabilities, The total number of past due days must not exceed 30, a single case of delayed payment must not exceed 15 days. Absence of overdue tax liabilities and fines, Revenues for the past 24 months must not decline by more than 20% /according to tax returns/, Absence of classified credit liabilities for the past 24 months Personal surety bonds issued by the founder and/or beneficial owner.
5.	Security	Real property acceptable to the Bank,
6.	Annual interest rate	3-6%
7.	Cancellation	AMD 25 000
8.	Claim payment	0.5%, minimum AMD 50,000
9.	Cases when a guarantee becomes a loan	Twice the settlement interest rate established by the RA Central Bank.