Bank Guarantee Financing

The term "Leasing" a Bank Guarantee is commonly associated with Collateral Transfer, but it's somewhat misleading. While the structure may resemble a commercial lease, it's crucial to clarify that there is no actual physical leasing of a Bank Guarantee. The more accurate terminology for these arrangements is Collateral Transfer Facilities, as no true leasing occurs.

A Bank Guarantee is customarily issued for a specific purpose to the beneficiary, and each contract is unique. Unlike a tangible asset, a Bank Guarantee cannot be transferred, bought, or sold. In a Collateral Transfer facility, a provider utilizes their own assets to secure a designated Bank Guarantee through their issuing bank, exclusively for the use of the specified beneficiary and within a specified term. This process essentially functions as a type of Securities Lending and often involves re-hypothecation, without any direct association with the concept of 'leasing.'

The issuing bank of the provider supplies the Guarantee to the beneficiary's account at the beneficiary bank, transmitted inter-bank through the appropriate SWIFT platform (typically MT760 for Guarantees). Throughout the Guarantee's term, the beneficiary has the freedom to use it for various purposes, such as providing security for loans, establishing credit lines, or engaging in trading activities. At the term's conclusion, the beneficiary commits to releasing any claims against the Guarantee and allowing it to expire or returning it before its expiry. Additionally, the beneficiary indemnifies the provider against any losses resulting from defaults on loans secured by the Guarantee.