CA-4.7.18
Past version: Effective from 01 Apr 2008 to 31 Mar 2011
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Capital relief for the use of a guarantee shall be given when the following conditions are satisfied:
a. the guarantee represents the bank's direct claim on the guarantor;
b.the guarantee is irrevocable and does not allow the guarantor to unilaterally cancel the guarantee after creation of the receivables;
c. the guarantee is unconditional and provides no protection clause that prevents the guarantor from being obliged to pay out in a timely manner in the event that the original counterparty fails to make payments due;
d. the bank has the right to pursue, in a timely manner, the guarantor for monies outstanding, rather than having to pursue the original counterparty to recover its exposure
e.the guarantee shall be an explicitly documented obligation assumed by the guarantor; and
f.the guarantee shall cover all types of expected payments made under the contract in the event that the original counterparty defaults.
g.Portions of claims guaranteed by the entities detailed in paragraph CA-4.2.1 above, where the guarantee is denominated in the domestic currency (and US$ in case of a guarantee provided by the Government of Bahrain and CBB) may get a 0% risk-weighting. A claim may be covered by a guarantee that is indirectly counter-guaranteed by such entities. Such a claim may be treated as covered by a sovereign guarantee provided that:
• the sovereign counter-guarantee covers all credit risk elements of the claim;
• both the original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter-guarantee need not be direct and explicit to the original claim; and
• CBB is satisfied that the cover is robust and that no historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct sovereign guarantee.
Please Note: Though insurance is normally part and parcel of the project risk financing, it is not regarded by CBB as a credit risk mitigation technique.
Please Note: Though insurance is normally part and parcel of the project risk financing, it is not regarded by CBB as a credit risk mitigation technique.
Apr 08