Guarantee facility is one of the non-fund based facilities extended by the banks to its constituents.
The bank shall issue performance guarantees and financial guarantees on behalf of its constituents on the merit of the individual cases as per the terms and conditions stipulated herein. The bank may defer issue of deferred payment guarantees for the time being
There is no minimum limit for the guarantee amount. As far as the maximum limit for the guarantee amount is concerned, it shall be subject to the ceiling of credit exposure as prescribed by the Regulations of Da Afghanistan Bank. It should be ensured that individual exposure as well as group exposure is within the prescribed limit. While calculating the exposure level to an individual or group, the aggregate of all outstanding guarantees and loans should be taken into account along with the proposed guarantee amount.
The appraisal standards applied to letters of credit and guarantees ( non-funded facilities) should be exactly the same as direct loans, as these non-funded exposures can crystallize into funded exposures at any time.
Sanctioning Authority for Guarantees shall be as per the lending power stated in the credit Policy of the bank. In case the guarantee amount is in foreign currency, the same shall be converted into Afghani currency to decide the sanctioning authority.
The bank should confirm that the guarantee is required by the applicant for his genuine business requirement. If possible, the bank should try to obtain detailed opinion and credit report on the applicant from banks / financial institutions / organizations of repute.In case request is for issuing Performance guarantee, an assessment of creditworthiness of the applicant, his past performance and his capability to discharge the conditions of the guarantee based on the analysis of financial statements of the applicant should be made.In case of Financial guarantees, the bank should also ask for the cash flow statement from the applicant and study the statement to know whether the applicant is in a position to meet his financial commitment for which the bank is issuing guarantee.The amount of the guarantee requested for should be justifiable looking into the nature of the applicant’s business and the purpose of the guarantee.
The guarantee shall be issued by the bank in favour of any person or company or organization. The beneficiaries may be from the country or from other countries. However, it should be ensured by the bank before issuing guarantee that the beneficiaries are not in the list of unwanted persons / companies / organizations, if any, maintained by the Government. Further the bank should confirm that the guarantee is required for genuine business purpose and the purpose is not illegal or immoral or unethical or against the rules and guidelines issued by the Government or Government Agencies or Da Afghanistan Bank.
- In respect of Performance guarantees, the commission shall be as per service charges schedule. on the guarantee amount.
- In respect of Financial guarantees, the commission shall be as per service charges schedule on the guarantee amount.
- The minimum commission shall be as per service charges schedule
- The minimum period for which commission shall be collected is 6 months.
- If the period of guarantee (including claim period, if any) is more than 6 months, commission should be charged in steps of 0.5% (performance guarantee) or 0.75% (financial guarantee) per quarter as the case may be. Part of the quarter should be treated as a full quarter.
- The guarantee period for which commission is calculated shall include both guarantee validity period and claim period, if any.
- In case there is 100% cash margin, 50% concession shall be given in the guarantee commission, subject to the minimum commission of Afg.1000/-or equivalent.
- In a specific situation when a period of original guarantee (including claim period, if any) is less than 6 months say 3 months and commission is recovered for minimum period of -6- months as per above guidelines and subsequently the customer requests extension of guarantee for only 1 month, so that total period of guarantee is less than 6 months i.e. , it is clarified that once a Guarantee is issued with a specific validity period and commission is charged as per above guidelines, the transaction in the Books of the Bank is complete at that stage. Hence, if subsequently further extension is requested, the customer will have to pay Guarantee commission for the period for which extension is required as per above rules.
(i) In case the guarantee is surrendered before the expiry of the guarantee validity period, the bank shall refund 50% of the commission for the un expired period, subject to the condition that the minimum commission earned by the bank shall not be less than Afg.500/-or equivalent even after the said refund.
(j) In case extension of guarantee period is required, commission should be charged at the rates stated above for the period of extension. The charges should be quarter-wise and a fraction of quarter shall be considered as a full quarter. Minimum commission for extension shall be as per service charges schedule /-. A concession of 50% shall be given in commission subject to a minimum commission of as per service charges schedule in case 100% cash margin is available.
(k) Out of pocket expenses, if any, like postal expenses or swift expenses, should be recovered from the applicant apart from the commission.
(l) No exchange and charges are to be recovered for effecting payment of invoked guarantee by the bank as these remittances are in respect of Bank's obligations.
Not less than 20% - In respect of Performance guarantees
Not less than 30% - In respect of Financial guarantees
Not less than 100% - In respect of guarantees issued to guarantee any disputed liability of the applicant or guarantees for an amount not more than 100,000/- Afghanis or equivalent.
The cash margin shall be refunded to the applicant, when the original guarantee is surrendered or a discharge letter is received from the beneficiary of the guarantee. No interest shall be paid by the bank on the cash margin money.
No collateral security is required in respect of the guarantees wherein the bank has obtained 100% cash margin.In other cases, landed properties shall be obtained as collateral security. Charge on the property should be created in favour of the bank in the appropriate court of law.In respect of performance guarantees, the value of the collateral security should be not less than 150% of the guarantee amount.In respect of financial guarantees, the value of the collateral security should not be less than 200% of the guarantee amount.The collateral security should be easily marketable and it should be to the satisfaction of the sanctioning authority. The value of the collateral security should be assessed with the help of a government approved valuer / engineer. Apart from the valuation report, a bank official should inspect the property and submit his report before sanctioning of guarantee. Expenses with regard to valuation by valuer / engineer and inspection by bank official should be borne by the applicant.