open Ended perofrmance Bond Guarantee

[WARLORD77]

Dears,

I have a guarantee issued on 18.112009, this performance Bond is valid until 30.06.2010 or until the date of issue of the final certificate by the supervising officer whichever shall be the later.

I calculated the Guarantee fees for the period between issuance date and expiry date.

Now my question is, in case the guarantee reached the expiry date, what should we do in accordance to :-
1) Guarantee fees, shall we take a fees for one year or what?
2) Customer, shall we contact customer or not on expiry date?

I need the procedure for you as banker, what do you do?

[Jackie]

Hello
With reference to your post I would like to comment as follows:

It is not usually a good idea to issue an open ended guarantee as potentially there may be a liability for a long time for which someone is charged. As long as the guarantee is current, a charge should be taken, perhaps liaise with your client and charge semi annually or a small amount per month. Of course this is dependant upon the value of the guarantee.

Thanks Jackie

[danohng]

It is very risky to issue an open-ended guarantee, unlike the evergreen guarantee where there is an 'escape' clause that allow the bank to terminate the guarantee with a notice to the beneficiary before the current expiry date. Unless you have the document call for and be able to verify it or a discharge letter from the beneficiary to cancel the guarantee, this guarantee will stuck forever.

You will have to hold on the the liability of the applicant and continue to collect the charges annually and track the transaction as long as it is valid. Charges collection will depend on your bank practice, suggest for annual collection to reduce the admin work.