In some cases, laws prevailing in the beneficiary’s county require that a local bank issues a letter of guarantee in its favour, or the L/G beneficiary wants its commercial bank to issue it a letter of guarantee. The instructing bank will in such situations, subject to obtaining consent from its client to issue a letter of guarantee, instruct (counter-guarantee) a specific foreign bank to issue a letter of guarantee in favour of the beneficiary. The term of validity of such a counter-guarantee must be minimum 15 days longer than the term of validity of the letter of guarantee.
The counter-guarantor must often comply with regulations prevailing in the country where the beneficiary of the letter of guarantee is headquartered.
The counter-guarantor must have in place correspondent relations with the guarantor bank (RMA – Relationship Management Application).
The counter-guarantee cannot be transferable.
When a counter-guarantee is issued, the cost of issuing is increased by the amount of costs incurred by the guarantor bank.
