The members of the International Chamber of Commerce (ICC) Qatar Banking Commission, addressing the seminar on Financial Guarantee Letter at the Qatar Chamber in Doha yesterday. Pic: Salim Matramkot/The Peninsula
All banks in Qatar will soon issue a uniform demand guarantee letter to customers, with the Qatar Central Bank (QCB) poised to adopt and circulate a standard format for guarantee letters by November, the International Chamber of Commerce Qatar (ICC Qatar) announced yesterday.
Currently, there is no standard template for demand guarantee letters in the country. And a number of banks are issuing guarantee letters with different conditions based on the requests of companies, which are sometimes contrary to international regulatory standards.
“The move aims to build a unified template for the guarantee letter consistent with the International Chamber of Commerce’s (ICC) Uniform Rules for Demand Guarantees No. 758 (URDG), which are standard terms of international banking practice in the operation of demand guarantees”, said ICC Qatar Banking Commission’s Vice Chairman Ghassan Azar, while addressing a seminar organised by the ICC Qatar for banks and company representatives at the Qatar Chamber yesterday.
“This step is a result of enormous effort made by the Commission with a view to creating a unified system for the demand guarantee letter. This will have a positive impact on the investment climate in Qatar and attract more foreign investments to the local market,” said Sheikha Tamader Al Thani, Director of International Relations and Chamber Affairs at ICC Qatar.
During his presentation, Azar highlighted the changes which have been made in the new template to address certain issues in the banking sector. With the new format, all banks will have a clear knowledge about their responsibility, including the length and amount of their financial liabilities under certain guarantees.
Bank guarantees will no longer be transferable. Open-ended conditions in guarantees as well as back-dated guarantees will also be eliminated. Also, claims sent by fax by beneficiaries will no longer be accepted to ensure the security of both parties. It is advised that beneficiaries present their demand guarantees in person or by courier, Azar added.
He also reiterated that it is the customer’s primary responsibility to know that their guarantee will expire at a certain date. Companies were further encouraged to present their claims 10-15 days before the expiry of their demand guarantees to allot enough time to correct any discrepancy.
A bank demand guarantee is known to serve as a personal security in terms of which a bank promises payment to a beneficiary if a principal defaults in the performance of his obligation in terms of the underlying contract.
The URDG, which sets a balance in the legitimate and competing interests of the applicant, the guarantor and the beneficiary; also limits the risk of unfair calls and demands on guarantors and counter-guarantors.
