2.8 Letter of Guarantee

2.8 Letter of Guarantee
The letter of guarantee business is one of the traditional strengths of the Bank of China. With the good international reputation of the Bank of China and the ability to handle the letter of guarantee business, the bank of china's letter of guarantee business occupies a large market share, in particular, it accounts for more than 75% of external guarantees of institutions in China.

The Bank of China always focuses on adapting to customer needs and developing new products, in recent years, the domestic industry has exclusively launched special products such as the processing trade tax guarantee business and the "Foreign Contracted Project guarantee risk Special Fund" guarantee business, and actively cooperated with various national economic development policies, it supports the development of China's processing trade, overseas engineering contracting and labor export, and effectively promotes the growth of China's exports.
2.8.1 business definition of Letter of Guarantee
A letter of guarantee is a written commitment issued by the bank to the beneficiary at the request of the applicant to ensure that the applicant fulfills its obligations under the contract with the beneficiary.
2.8.2 parties to the letter of guarantee
The parties involved in the letter of guarantee and Their Relationships are as follows:

Trade, engineering, and other contracts

(Basic contract)

Delegated contract
(Application Form) bank letter of guarantee

2.8.3 types of Letter of Guarantee
A letter of guarantee is divided into two types according to the nature of the bank's liability for guarantee: credit letter and Payment letter. The credit letter business includes the bidding letter of guarantee, performance letter, prepayment letter of guarantee, reserved letter of guarantee, quality letter, and customs letter. Payment Guarantee businesses include payment guarantee, financing guarantee, lease guarantee, and compensation trade guarantee.

2.8.4 features of Letter of Guarantee
(1) bank credit replaces commercial credit, solves the issue of mutual distrust between the parties, and facilitates the execution of the contract;
(2) wide range of applications-applicable fields involving goods, labor, technology trade, engineering project contracting, construction, material Import and Export Declaration, financing to financial institutions or financial markets, leasing of large sets of equipment, litigation preservation in litigation procedures, fulfillment of various contractual obligations, etc.
(3) flexible and diverse formats-tailored to projects and customer needs
(4) convenient and convenient procedures
(5) broad development prospects
2.8.5 Bank of China Letter of Guarantee opening process

1. submit an application

①

1. submit an application

2. Implement guarantee

No

Yes

Note: 1. The customer applies to the business department of the Bank of China to open a letter of guarantee, or directly applies to the settlement business department of the Bank of China.
2. The settlement business department of the Bank of China reviews the implementation of reverse guarantees under the letter of guarantee and receives a deposit. If the deposit is insufficient, the business department of the company is required to give credit.
2.8.6 tender Letter of Guarantee
2.8.6.1 business definition of the bidding letter of guarantee
In projects such as project construction and material procurement that are sold through tender, A written commitment issued by the bank at the request of the tenderee to ensure that the bidder does not withdraw or change the bidding within the validity period of the tender, signs a contract or submits a performance guarantee within the specified time.
2.8.6.2 use of the tender Letter of Guarantee
It is applicable to the situations where the owner requires the bidder to pay the tender deposit during public bidding and bidding. The tenderee usually requires the bidder to pay the tender deposit to prevent losses to the bidder due to the change, withdrawal, or rejection of the contract during the evaluation process, so as to restrict the behavior of the other party. The tender bond is an alternative form of cash deposits.
2.8.6.3 convenience provided by the bidding letter of guarantee to the customer
-- For the bidder
Reduce capital occupation caused by cash deposits;
Compared with cash deposits, limited funds can be optimized;
The procedure is simple to meet the requirements of high timeliness.
-- For the tenderee
Reasonably restrict the contractor or supplier from fulfilling their contractual obligations and safeguard their own interests;
Avoid the hassle of the deposit collection and refund procedures and improve work efficiency.
2.8.7 performance guarantee
2.8.7.1 business definition of performance guarantee
A written commitment issued by the bank to the owner or the buyer upon the application of the engineering contractor or the supplier of goods to guarantee that the contractor or supplier strictly fulfills its contractual obligations.
2.8.7.2 use of performance guarantee
It is applicable to providing guarantees for the fulfillment of contractual obligations of the parties, and is common in projects such as project contracting and material procurement. In project contracting, material procurement, and other projects, the owner or the buyer usually requires the contractor or supplier to pay a performance bond to avoid losses to the contractor or supplier due to the non-fulfillment of the contractual obligations, to restrict the behavior of the other party. A performance bond is an alternative form of cash deposits.
2.8.7.3 convenience provided by performance guarantee for customers
-- For the contractor or supplier
Reduce the long term capital occupation caused by the payment of cash deposits;
Compared with cash deposits, the limited funds can be optimized;
-- For the owner or buyer
Reasonably restrict the contractor or supplier from fulfilling their contractual obligations and safeguard their own interests;
Avoid the hassle of the deposit collection and refund procedures and improve work efficiency.
2.8.8 prepayment Letter of Guarantee
2.8.8.1 business definition of prepayment Letter of Guarantee
The secured bank shall, upon application by the engineering contractor or supplier of goods, provide a written commitment to the owner or the buyer to guarantee that the contractor or supplier fulfills its contractual obligations after the buyer pays the prepayment.
2.8.8.2 prepayment letter of guarantee should be used
Applicable to projects with prepayment included in the payment method, which are common in projects such as project contracting and material procurement. In projects such as project contracting and material procurement, the owner or the buyer shall lose the prepayment to prevent the contractor or supplier from failing to fulfill its contractual obligations after obtaining the prepayment, the bank is required to provide a guarantee for the contractor or supplier to repay the prepayment when the contractual obligations are not fulfilled.
2.8.8.3 convenience provided by the prepayment letter of guarantee to the customer
-- For the owner or buyer
When the contractor or supplier fails to fulfill its contractual obligations, the prepayment can be recovered smoothly;
Strengthened the constraints on the performance of the contract by the contractor or supplier according to regulations.
-- For the contractor or supplier
This facilitates the timely delivery of prepayment funds;
Obtain the project launch fund in time to facilitate the smooth execution of the contract.
2.8.9 Deposit Guarantee
2.8.9.1 business definition of reserved Letter of Guarantee
A written commitment issued by the bank to the owner or the buyer upon the application of the engineering contractor or supplier to guarantee that the contractor or supplier fulfills its contractual obligations after receiving the final part of the contract price in advance. The deposit guarantee is also known as the "deposit guarantee" and "final guarantee.
2.8.9.2 use of the reserved Letter of Guarantee
Applicable to the late execution of the contract, when the owner or the buyer is stranded, the contractor or the supplier must withdraw the final amount in advance by bank guarantee.
2.8.9.3 convenience provided by the Deposit Guarantee
-- For the contractor or supplier
Withdrawal of the final fund in advance solves the problem of insufficient liquidity funds and facilitates capital turnover.
-- For the owner or buyer
Guarantees the fulfillment of subsequent contractual obligations; achieves the same purpose as the remaining amount.
2.8.10 Quality Guarantee
2.8.10.1 business definition of quality guarantee
A written commitment issued by the bank to the owner or the buyer upon the application of the engineering contractor or supplier to guarantee that the contractor or supplier fulfills its contractual obligations during the warranty period or maintenance period. The Quality Guarantee is also known as the "Service Guarantee ".
2.8.10.2 use of quality guarantee
It shall be applicable to situations where the contract, such as project contracting, supply and installation, enters the warranty period or maintenance period, and the owner or buyer requests the contractor or supplier to fulfill the warranty obligations. After the warranty period or maintenance period expires for a project such as project contract, supply and installation, the owner or the buyer shall avoid inconsistency between the quality of the project and the goods as stipulated in the contract, if the contractor or supplier does not wish or refuse to repair, replace or maintain the performance guarantee, the contractor or supplier is often required to provide a quality guarantee before the expiration of the performance guarantee period, this restricts the obligations of the contractor or supplier during the warranty period.
2.8.10.3 convenience provided by Quality Guarantee
-- For the owner or buyer
Ensure that the contractor or supplier fulfills its warranty or repair obligations
-- For the contractor or supplier
Improves the market competitiveness of the contractor or supplier
2.8.11 tariff guarantee
2.8.11.1 business definition of tariff guarantee
A written commitment issued by a secured bank to the Customs at the request of an importer (including a processing and trade enterprise) to guarantee the performance of the duties paid by the importer. The customs guarantee business handled by the Bank of China mainly includes two types: The Customs guarantee and the processing trade tax guarantee.
2.8.11.2 use of the tariff guarantee
Scope of Application of the product: the national tax deduction and exemption policies for imported goods do not specify the import of the relevant goods; items such as equipment and equipment temporarily enter the customs of other countries during the construction of overseas engineering contracts, overseas exhibitions, exhibition and sales activities; materials imported by processing and trading enterprises; the customs first places and then signs for certain goods.
2.8.11.3 convenience provided by the Customs guarantee
-- Reduces the capital occupation pressure caused by the enterprise's deposit payment.
-- The "first release and then levy" method accelerates the customs clearance of goods and avoids goods stranded in ports to increase costs
-- Temporary entry into the customs of other countries reduces the trouble of tax refund procedures
2.8.12 Payment Guarantee
2.8.12.1 business definition of Payment letter
A written commitment issued by the bank to the seller upon the buyer's application to guarantee the buyer's fulfillment of the payment obligations under the procurement of goods, technology, patents or labor contracts.
2.8.12.2 use of the Payment letter
Product Scope:
1. applicable to goods trade, technical labor trade, and engineering projects with payment behaviors.
2. Guarantee for the buyer to pay the goods in time after the seller delivers the goods according to the contract in the commodity trade.
3. Guarantee of payment for the project progress paid by the owner to the contractor in full and on schedule under the project contract.
2.8.12.3 features of the Payment letter
In commodity trade, the payment Letter of Guarantee has the same effect as the letter of credit, but the procedure is simple;
Flexible and diverse formats to meet different needs
The letter of credit follows a fixed format and practice, while the format of the Payment letter varies by project and can be customized for the customer;
A wide range of applications. The Payment letter of guarantee can be used not only for commodity trade, but also for engineering projects. It is more extensive than the letter of credit.
2.8.12.4 convenience provided by the payment guarantee for the customer
-- For the seller or contractor
It is guaranteed to fully recover the payment for goods and projects, facilitate delivery and construction, and facilitate the smooth development of trade.
-- For the buyer or the owner
The payment conditions in the Payment letter can restrict the actions of the seller and the contractor to a certain extent, so as to protect the interests of the buyer or the owner.
2.8.13 financing Letter
2.8.13.1 business definition of financing Letter
A written commitment issued to the lender upon the borrower's application to guarantee the borrower's performance of the Loan Fund repayment obligations. The financing guarantee business handled by the Bank of China mainly includes: loan guarantee, overdraft guarantee, securities issuance guarantee, and bank credit line guarantee.
2.8.13.2 use of financing Letter
Product Applicability
1. The borrower obtains various forms of financing from banks and other financial institutions;
2. The borrower issues marketable securities in the financial market.
2.8.13.3 convenience provided by the financing Letter to the customer
-- For borrowers
Reducing the financing cost is conducive to the borrower obtaining financing; improving the borrower's credit rating is conducive to the sale of marketable securities.
-- For lenders or buyers of marketable securities
The risk of financing is scattered, which improves the security of loan funds and is fully protected by the payment of marketable securities.
2.8.14 lease Letter of Guarantee
2.8.14.1 business definition of lease Letter of Guarantee
Written commitment issued by the bank to the lessor at the request of the lessee to guarantee that the lessee pays the rent on schedule. The lease letter of guarantee is divided into the financing lease Letter of Guarantee and the business lease letter of guarantee according to different leasing methods.
2.8.14.2 use of the lease Letter of Guarantee
Product Applicability
In a leasing project, the lessor shall not be able to repay the rent on schedule by the lessee. In the case of financial leasing, the lease term is long and the leasing objects are specific, so that the lessor may bear large risks, banks are often required to guarantee the repayment of rents by tenants on schedule.
2.8.14.3 convenience provided by the lease letter of guarantee to the customer
-- For the lessor
This facilitates the implementation of lease contracts and ensures timely rental recovery.
-- To the lessee
It is beneficial for the lessee to obtain the right to use equipment, obtain financing, and promote capital turnover.
2.8.15 compensation trade guarantee
2.8.15.1 business definition of compensation trade guarantee
Under the compensation trade contract, the guarantee bank shall, at the request of the Equipment Technology introducing party, provide a written commitment to the equipment technology supplier to guarantee that the importing Party fulfills its obligation to return the equipment or technology price by product or cash.
2.8.15.2 convenience provided by the compensation trade guarantee for customers
-- For device technology providers
Fully protected by the recovery of equipment and technical prices
-- Introduce devices and technologies
It facilitates the signing and fulfillment of the compensation trade contract and solves the problem of insufficient funds of the introducing party.