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Monetising Financial Instruments

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Demand Bank Guarantee Defined

A Demand Bank Guarantee is payable on first demand and in the case of monetising it ensures the lender will be paid if the borrower fails in their financial obligations and defaults on repayment. The guarantee is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758) and within the format is precise verbiage that will satisfy the risk committee of any lender.

In the event a Standby Letter of Credit is being monetised the verbiage used will be the same as a Demand Bank Guarantee. The Standby Letter of Credit will now also be governed by ICC Uniform Rules, (URDG 758).

Monetising a Demand Bank Guarantee

When the Demand Guarantee has been received and applied to the account of the beneficiary they now own a financial instrument that can be securitised and used as collateral for credit facilities. The beneficiary can now approach their bank with confidence and offering the bank guarantee or stand by letter of credit as security request a loan or a line of credit. These two facilities are often referred to as Credit Guarantee Facilities.

URDG 758 Explained

ICC Uniform Rules for Demand Guarantees, (URDG 758)

Just after the end of World War 1 the International Chamber of Commerce, (ICC), was founded by a group of business men creating an organisation that would represent business on a global basis.

Today, based in Paris with over 45 million members in over 200 countries the International Chamber of Commerce sets the rules and standards adhered to not just by all major banks and financial institutions but all businesses and markets.

URDG 758

URDG 758 are a set of rules specifically laid down by the International Chamber of Commerce with regard to the issuing of Demand Bank Guarantees. This rule demands that exact verbiage is contained within the format of a Demand Bank Guarantee.

This verbiage ensures that any lender will have their losses covered in full if the borrower defaults on a loan. The lender can claim against the Demand Bank Guarantee in the knowledge that it is Payable on First Demand.

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