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Dear Experts,

What is counter guarantee in standby letter of credit?

What is the use of counter guarantee in standby letter of credit

Regards,
Dinesh

Dear experts,

Any opinion on this.

Regards,
Dinesh

Hi Pal,

Counter guarantee is a technical word to indicate the guarantee given by a bank to another bank issuing a guarantee. It happens when, by law, a foreign bank even of good or best standing, is not authorized to issue guarantee in favor of resident in a specific Country but only allowed to instruct a local bank to issue a bank guarantee on its behalf.
In SBLC, under UCP600, I have no specific idea, may be under ISP98 something could appear.
So please let me, and us, know details about present transaction.
Ciao

Dear Ciao,

Thanks for help. Will update the status soon when i have current transaction handy.

Regards,
Dinesh

Dear Pals,

Counter Gtee is more of the product under URDG. It allows an instructing party (e.g. instructing bank) to instruct another party (e.g. the local gtee issuing bank) to issue a local gtee against the instructing party's liability (i.e. counter-gtee) The wording of local gtee usually is provided under the corresponding counter-gtee.
The reason for such arrangement is probably to meet beneficiary's needs (uncer nlocat gtee) that a local gtee i/o overseas gtee is required, for example for regulation or the like.

There are times when an applicant wishes to issue a BG to a beneficiary abroad, for securing a payment obligation or a performance obligation abroad
In these cases the beneficiary would require the BG to be payable in foreign currency, usually USD or the local currency of the beneficiary’s country
Banks usually take help of their correspondent banks to issue such guarantees in foreign currency
In case the original guarantee gets invoked by the beneficiary, the correspondent bank invokes the counter guarantee and is reimbursed accordingly

from a blog...
Counter-guarantees are furnished by a company to the banker or other third party who furnished the principal guarantee on behalf of the company. Obviously, if the principal guarantor is called upon to meet his guarantee obligation, he will proceed against the company in order to recover the amount which he has paid under his guarantee obligation. The only difference between a guarantee and a counter-guarantee in so far as the company is concerned, is that in the former case, the company is obligated on the guarantee to the person to whom it is furnished whereas in the latter case, it is obligated to the banker or other third party who has furnished the original guarantee.

Counter Guarantee and SBLC may serve purpose ?

First understand the flow. I will give an example:
I am in Turkey and want to export goods to Africa. I request buyer to issue a guarantee from outside Africa in order to avoid the Country risk. Since I will not accept a Guarantee directly from a Bank in Africa, the Buyer will request its Bank in Africa to issue a Counter Guarantee. The Bank in Africa will issue a Counter guarantee in favor of a European bank. (This will secure the payment obligation between both banks). Then the European bank will issue a Guarantee in favor of my company in Turkey.

I wrote it is very simple words for all to understand.

As one of previous comments indicated, Counter Guarantee (CG) is a guarantee which Bank A issues to Bank B for issuing local guarantee. As long as a bank guarantees the other bank, that is CG regardless it is Demand Guarantee or SBLC and regardless the type of guarantee. The Bank B will issue local guarantee under liability of the Bank A. Local guarantee text will be indicated on the Bank A`s CG between QUOTE and UNQUOTE.
In banking practice, if it were a Demand Guarantee, the applicable rule would be URDG 758. If it were a SBLC, the applicable rule would be either in UCP600 or in ISP98. As for SBLC, if it were issued in MT-700, then most likely the applicable rule would be UCP600. If the message type were MT-760, then most likely the applicable rule would be ISP98.
No matter what message type, the Counter-Gurantor`s CG has to indicate ``Request`` so that CG receiver bank knows that they have to re-issue local guarantee based on CG. If a CG indicates ``Issue``, then CG receiver bank is going to think they are merely an advising bank rather than re-issuing bank.

Regards,