2018

Guarantee Procedure

[DOCUMENT SUBTITLE]
:AUTHOR

AFGHANISTAN INERANATIONAL BANK | Kabul, Afghanistan

Contents
Introduction ................................................................................................................................................................4
Chapter 1. Guarantee Definitions and Types ............................................................................................................5
1.1. Guarantee Definition: .................................................................................................................................5
1.2. Guarantee Types.........................................................................................................................................5
1.2.1. Bid Bond: ............................................................................................................................................5
1.2.2. Performance Guarantee: ....................................................................................................................6
1.2.3. Advance Payment Guarantee: ............................................................................................................6
1.2.4. Retention Guarantee: .........................................................................................................................6
1.2.5. Shipping Guarantee: ...........................................................................................................................6
Chapter 2. Guarantee Application.............................................................................................................................7
2.1 Application Form: .......................................................................................................................................7
2.2 Guarantee Template: .................................................................................................................................7
Chapter 3. Collateral ..................................................................................................................................................8
3.1. 100% Cash Secured: ...................................................................................................................................8
3.2. Counter Guarantee: ....................................................................................................................................8
3.3. Partially Cash Secured (Below 100%): ........................................................................................................9
3.4. Line of Guarantee: ......................................................................................................................................9
Chapter 4. Pricing .................................................................................................................................................... 10
Chapter 5 Applicable Law ....................................................................................................................................... 11
Chapter 6 Guarantee Issuance ............................................................................................................................... 12
6.1. One-Off Application & Fund Blockage: ....................................................................................................... 12
6.2 Document Submission for verification of CMLA: ................................................................................... 12
6.3 Obtaining required Approvals and signatures: ...................................................................................... 12
6.4 Opening cash Cover Account: ................................................................................................................. 12
6.5 Preparation of Guarantee Contract/documents: .................................................................................. 12
6.6 Guarantee Print & Submission: .............................................................................................................. 13
6.7 Booking instruction to TFL Operation: ................................................................................................... 13
6.8 Document submission for archive to CMLA:.......................................................................................... 13
6.9 Bank Guarantee Issuance through Branches: ........................................................................................ 13
Chapter 7. Guarantee Confirmation: ..................................................................................................................... 15
Chapter 8. Guarantee Amendment: ....................................................................................................................... 16
8.1. Request Letter: ............................................................................................................................................ 16

2
 8.2. One-Off Application: .................................................................................................................................... 16
8.3. Fund Blockage: ............................................................................................................................................. 16
8.4. Document Submission for verification of CMLA: ....................................................................................... 16
8.5. Obtaining required Approvals: .................................................................................................................... 16
8.6. Amendment Print & Submission: ................................................................................................................ 16
8.7. Booking instruction to TFL Operation: ........................................................................................................ 16
8.8. Document submission for archive to CMLA: .............................................................................................. 16
8.9. Obtaining Beneficiaries acceptance where applicable:.............................................................................. 16
Chapter 9. Cancellation: ......................................................................................................................................... 18
9.1. Cancellation Request/Original BG: ............................................................................................................. 18
9.2. Lost Guarantee:............................................................................................................................................ 18
9.3. No Claim of Beneficiary: .............................................................................................................................. 18
9.4. Cancellation Memo:..................................................................................................................................... 18
9.5. Submission to CMLA: ................................................................................................................................... 18
9.6.Release of Guarantee: .................................................................................................................................. 18
Chapter 10. Claim.................................................................................................................................................... 19
10.1. Receive of Demand/Claim letter from Guarantee Beneficiary: ............................................................... 19
10.2. Verification of Demand/Claim letter: ....................................................................................................... 19
10.3. Time for examination of Demand: ............................................................................................................ 20
10.4. Rejecting a Demand: .................................................................................................................................. 20
10.5. Approval Memo for honoring the claim: .................................................................................................. 20
10.6. Submission of claim document to CMLA: ................................................................................................. 21
10.7. Honoring the Claim: ................................................................................................................................... 21
Chapter 11. Guarantee Expiry/Closure: ................................................................................................................. 22
Chapter 12. Advising of Guarantee: ....................................................................................................................... 22
Chapter 13. Exceptions: .......................................................................................................................................... 22
Chapter 14. DAB Asset Classification Regulation: ................................................................................................. 22

3
Introduction
The request for bank guarantees in support of contractual obligation has become common
practice in the market and different forms of guarantees have evolved to cater for the
diverse types of commercial and financial transactions.
In accordance with the international practices of demand guarantees Uniform Rules for
Demand Guarantees (URDG), International Chamber of Commerce (ICC) Publication 758, AIB
is issuing bank guarantees of different types i.e. Bid guarantees, Performance guarantees,
Advance Payment guarantees and other types as per requirements of beneficiaries and
terms of the contracts. This document is the outline of the practices being undertaken at AIB
and is hereby delivered to the Head Office and branches for better and on time services and
process of bank guarantees to the customers. It is also a guideline for Head Office and
authorized branches to obtain the necessary documents from customers related to bank
guarantees.
This document gives an overview of bank guarantees, and their different types. Therefore it
is also suitable for all those who want to get acquainted with the basics of guarantees.
Since the topic is very broad we have attempted to introduce the most important aspects in
dealing with bank guarantees.
Issues not covered under this document may be discussed and shared with Trade Finance for
possible situation.

September 2018
Mariam Hayeri

4
Chapter 1. Guarantee Definitions and Types

1.1. Guarantee Definition:

A bank guarantee is a promise from a bank or other lending institution that if a particular
borrower/contractor defaults on a loan/contract, the bank will cover the loss.
Bank Guarantees are unconditional promises of the issuing bank, (acting on the request of an
applicant or counter guarantees from highly rated international banks.) to pay on demand in
writing, a specified sum of money to the beneficiary for non-performance or non-fulfillment of
an obligation on part of the applicant without reference to the original contract, within a
specified time period.
Bank Guarantee is an agreement between 3 parties viz. the bank, the beneficiary (party to
whom the guarantee is given) and the applicant (party who seeks the bank guarantee from the
bank)
Features of a Valid Guarantee
- The period until which the guarantee holds is clearly specified.
- The guarantee is always issued for a specific amount
- The purpose of the guarantee is clearly stated
- The guarantee is valid for a specifically defined period
- Guarantee clearly states the events under which it can be enforced.

1.2. Guarantee Types

There are various types of Bank Guarantees stated below each which are used under specific
type of transaction:

1.2.1. Bid Bond:

Bid bond guarantees (also called a tender bond) are typically used in tenders to ensure that the
winning bidder undertakes the contract as per the terms of their agreement contract. In case a
winning bidder does not perform the tender requirements as stipulated, then the tender issuer
can invoke the bank guarantee and fully or partially encash the amount. Therefore, bid bonds are
used to ensure that the winning bidder performs as per the tender terms after winning the
tender.

Bid Bonds are usually issued for 3% to 5% of the tender amount.

5
 1.2.2. Performance Guarantee:
A Performance Guarantee is issued by the bank to guarantee performance of the contractor as
per contract terms. A performance guarantee is typically invoked if the buyer (beneficiary) incurs
cost and the seller (Applicant of the Guarantee) does not deliver goods or services as promised
in the contract. To invoke a performance guarantee, the beneficiary is generally required to
declare in writing that the seller/applicant of the guarantee did not fulfill his or her contractual
obligations properly or on time.

1.2.3. Advance Payment Guarantee:

An advance payment guarantee is used to protect the advance payment made by a buyer
(Beneficiary) to a seller (Applicant). In case the seller fails to deliver goods or services as per the
terms and conditions of a trade transaction, then the buyer can invoke the advance payment
guarantee to recover full or partial advance payment made to the seller. Advance payment
guarantees are used in international trade transactions and domestic transactions wherein large
advance payments are made to a vendor

1.2.4. Retention Guarantee:

Is the type of performance bond that protects the customer after a job or project is finished. It
guarantees that the contractor will carry out all necessary work to correct structural and/or other
defects discovered immediately after completion of the contract, even if full payment has been made
to the contractor.
In other words:
Under the primary contract the beneficiary is permitted to retain a certain percentage of the
payment due to the principal as a safeguard against latent defects. In order to secure the release of
these retention monies, the applicant will apply for a retention guarantee.
Nevertheless, it does assure reimbursement to the beneficiary in the event of the applicant’s non-
performance after completion of the contract. Retention bonds aid applicants experiencing cash flow
problems.

1.2.5. Shipping Guarantee:

This is an undertaken by a bank to indemnify the shipping company against any liability that arises
as a result of releasing imported goods to the consignee without the documents of the title (bill of
lading). The indemnity could incorporate the cost of the goods, freight charges, legal costs and more.
A shipping guarantee enables the consignee to obtain release of the goods from the shippers, so as
to avoid inconvenience and financial loss such as demurrage charges, where goods arrive before the
documentation. A shipping guarantee remains in force until the original bill of lading is produced.

6
Chapter 2. Guarantee Application

2.1 Application Form:

Initially, upon client’s approach to the bank for obtaining a bank guarantee, Trade Finance ensures
availability of proper application along with adequate collateral security. Below are the necessary
documents required by the bank to process a bank guarantee;

- Application/Official Request Letter: As per standard format Annexure1.

- Copy of contract: copy of IFB(Invitation for Bid)/ITB for Bid Guarantee and copy of award
notice\contract for performance\advance payment guarantee. (These documents are
optional)

Note: Since KYC is already done at the inception while account opening stage and these are routinely
being updated for all existing AIB clients, hence Compliance department’s NOC is not required for
existing AIB account holders and governmental beneficiaries. However, for walkin clients (in case of
counter guarantees) and new beneficiaries, Non Objection Certificate (NOC) of Monitoring &
Investigation Unit (MIU) of Compliance department is required

Who has to Sign the application Form:

Irrespective of whether authorized in the account or not and based on Article of Association of the
company, consent of all shareholders of the company, irrespective of their share percentage in the
company, to issue a bank guarantee is must.
- If a company is having its parent company outside Afghanistan a legalized board resolution
for introducing authorized persons should be given from the parent company or from the
same company.
- In case of President & V.P holding shares of the company is not authorized in the account.
Both Signature of President & V.P along with authorized signatory’s signature should be taken
in request for guarantee.
The other account signatories are allowed to sign the application for guarantee if they have a duly
processed power of attorney from the company beneficial owners.
In case of Non-Governmental Organizations (NGOs) the board of directors as per the fact sheet
secretary to sign the guarantee application. must pass a duly processed resolution authorizing the
NGO director/deputy director or general
Any exceptions for customer’s signature in the guarantee application to be approved by the HOCC.

2.2 Guarantee Template:

7
 Applicants can request issuance of bank guarantee in any format subject to the approval and no
objection of Legal department.

AIB has it’s standard formats for each type of guarantees, however in case if applicant request
issuance of the guarantee in a new Template, the template should be checked and approved both
by Trade Finance and Legal Department.

Note: For any new case a blank template without the previous customer’s information should be
used.

Chapter 3. Collateral

3.1. 100% Cash Secured:

AIB Issues local guarantees against 100% cash margin. Clients should be encouraged to provide the
Cash Margin from their account with the same currency of the bank guarantee. Cash Margin will be
blocked before issuance of the guarantee and will be reversed back to client on cancellation event.

3.2. Counter Guarantee:

To meet non-account holder AIB’s customers’ need apart from Cash Secured guarantees, AIB also
issues guarantee under counter guarantee of the high rated banks.
Counter Guarantor Acceptance Criteria:
- The bank will use risk rating websites such as Moody’s, Standard & Poor’s, Fitch or etc for
checking ranking of the banks.
- “A” rated banks will be directly accepted as counter guarantors, however acceptance of banks
with ranking below A will be subject to HOCC’s approval.
- Counter Guarantee must be received through “MT700 series” messages, however It is not
mandatory that the counter guarantor should have RMA relationship with AIB and they can
route their C.Guarantee through other banks with whom we have RMA for authentication
purpose
- Counter Guarantors and applicant of such guarantees will be screened by Compliance
department.
Counter Guarantee requirements:
- Amount of the counter guarantee should be 100% of the guarantee with same currency.
- Counter guarantee’s expiry preferably to be 30 days later than the expiry of the local
guarantee but not less than 15 days.

8
 - Both guarantee and counter guarantee should have been issued under URDG 758
- To the extent not covered under URDG 758 both guarantee and the counter guarantee should
be preferably issued under the laws of Afghanistan, however New York and English law is also
acceptable.

3.3. Partially Cash Secured (Below 100%):

On exception cases where applicant can arrange us other collaterals we can accept the guarantee
requests for the cash margin below 100%.

All requests for below 100% to be entertained by relevant business units and must be approved by
HOCC for less than 1 million, cases greater than 1 million to be approved by board. Upon completion
of approval of guarantee Trade Finance will only issue the guarantee.

3.4. Line of Guarantee:

Upon specific request of client, guarantee line for a mutual agreed limit and pricing can be granted
to regular clients. Such lines if covered by 100% cash margin are processed by Trade Finance. The
tenor of guarantee line should initially not exceed 1 year although it can be renewed upon expiry.

9
Chapter 4. Pricing

For issuance of guarantee AIB charges a non-periodic fee being the Arrangement Charges and a periodic
fee which is the Commission. Charges sheet is as per annexure 2
In case of local guarantee charges should be available in client’s account before issuance of the
guarantee, however for counter guarantees under which charges are payable by the counter guarantor
charges can be recovered after issuance of the guarantee.
Note: As per Article 32 of URDG 758:

A. A party instructing another party to perform services under these rules is liable to pay that party's
charges for carrying out its instructions.

B. If a guarantee states that charges are for the account of the beneficiary and those charges cannot be
collected, the instructing party is liable to pay those charges. If a counter-guarantee states that charges
relating to the guarantee are for the account of the beneficiary and those charges cannot be collected,
the counter-guarantor remains liable to the guarantor, and the instructing party to the counter-
guarantor, to pay those charges.

10
Chapter 5 Applicable Law

AIB preferably issues all it’s guarantees under Uniform Rules for Demand Guarantee (“URDG”) latest
version except otherwise required by the client. To the extent if not covered under URDG latest version
all local guarantees are also issued under the laws of Afghanistan, however English and New York Laws
are also acceptable in case of guarantees secured under counter guarantees.
URDG 758 is not a law by force hence the usage is about 50% in most countries. Bank guarantee is based
on trust and confidence as the bank purely guarantees the payment basis the capacity and credibility of
its client to be able to fulfill his contractual obligation. There are 35 articles in URDG 758 which set out
the liabilities and responsibilities of each party, the process to present a demand, the expiry conditions
and how to deal with amendments and transfers of guarantees and counter-guarantees. The rules are
clear and concise. It is safe to assume that today all the big projects around the world do not place
without a bank guarantee.
As per URDG Article 1 a: “THE UNIFORM RULES FOR DEMAND GURANTEE (“URDG”) APPLY TO ANY
DEMAND GURANTEE OR COUNTER-GUARANTEE THAT EXPRESSLY INDICATES IT IS SUBJECT TO THEM.
THEY ARE BINDING ON ALL PARTIES TO THE DEMAND GUARANTEE OR COUNTER-GUARANTEE EXCEPT
SO FAR AS THE DEMAND GUARANTEE OR COUNTER GUARANTEE MODIFIES OR EXCLUDES THEM.

11
Chapter 6 Guarantee Issuance

6.1. One-Off Application & Fund Blockage:

6.1.1 Preparing One-Off Application:
The One-Off Application will be prepared by Trade Finance Department after receipt of
client’s request/application form.
The One-Off Application must contain all the information about the applicant of the
guarantee (i.e their account name and details, License details, experience with AIB etc.)
it should also contain all the information under requested guarantee. [Format as per
annexure 3]
The One-Off Application will be prepared by Trade Finance, verified by CMLA and
recommended by Head of Trade Finance for approval.
The One-Off application should be approved by two A signatories of the bank which one
of them should be HOCC member
6.1.2 Fund Blockage:
Trade Finance Department will instruct TFL Operation Department to block required fund
for Cash Margin and Charges in normal account of client.
The fund will be kept blocked until guarantee is booked in the system. Once booking is
done, cash margin is transferred to related cash cover account of client and charges are
recovered the blocked amount will be released.
Client should always be encouraged to keep fund in their account with the same currency
of requested bank guarantee.
(In case if cross currency is involved 5% extra will be blocked which will be released after
booking of the guarantee.)
6.2 Document Submission for verification of CMLA:
6.2.1 Full set of documents will be submitted for verification of CMLA before obtaining
signatures.
6.2.2 CMLA will sign off the One-Off Application as verified.
6.3 Obtaining required Approvals and signatures:
Approval for issuance of guarantee will be obtained through signing One-Off Approval by
two “A” signatories of the bank which one of them should be HOCC member.
6.4 Opening cash Cover Account:
Trade Finance will prepare a memo approved by Head of Trade Finance for opening Cash
Cover Account to SD department.
The Cash Cover Account (CASCOV) by default will be restricted by No Debit and No Credit.
6.5 Preparation of Guarantee Contract/documents:
6.5.1 For cases secured under 100% Cash margin apart from One-Off Application following
documents need to be prepared and signed both by the bank and the applicant.
- Facility Acceptance Letter (FAL)

12
 - Deposit & Pledge Agreement
- Letter of Counter Guarantee
- Undertaking (only in case of cross currency transactions)
Note: In case of counter guarantee above documents are not required.
Above mentioned documents need to be signed and stamped by the applicant before receiving the
guarantee from the bank. (Note: Letter of Counter Guarantee should be printed in letter head of the
applicant)
Unless a duly processed letter of authority is given, on behalf of applicant, all guarantee documents
must be signed by President and Vice President of the company or any of their representative duly
authorized by them. On behalf of the bank, guarantee documents will be signed by Head of Trade
Finance.
6.6 Guarantee Print & Submission:
Guarantee will be printed in Guarantee Letterhead by Trade Finance and will be stamped by
special embossed seal available with CMLA.
The Guarantee Letter must be signed by Head of business Development and CCO which in their
absence two “A” signatories will sign the guarantee letter.

Note: Bank is holding special letterheads for bank guarantees which are kept in safe custody of
Trade Finance. Further, few branches like Herat and Mazar are also provided with special BG
letterheads printed for those branches.
Furthermore, bank also holds a special embossed stamp for guarantees which is kept by CMLA.

Original guarantee will be submitted to authorized representative of the applicant and signed
receipt with date and time must be received back.

6.7 Booking instruction to TFL Operation:

Once guarantee is submitted to the client original One-Off Application will be handover to TFL
Operation Department and they will be instructed through email for booking the guarantee in
the system.
As soon as booking is done in the system TFL O. will confirm their action back to Trade Finance
and will submit the original One-Off Application after signing to CMLA and copy to Trade Finance.
6.8 Document submission for archive to CMLA:
Full set of documents (except one-off application which is already with CMLA) will be submitted
to CMLA for archive purpose.
6.9 Bank Guarantee Issuance through Branches:
6.9.1 Presently few Provincial Branches are authorized to issue Bank Guarantees to facilitate
this requirement for Customers in Key Provinces.
6.9.2 Branches send the scan copy of Request Letter along with other required documents to
Head Office –Trade Finance Department.

13
 6.9.3 Trade Finance after completion of all formalities at Head Office Level send the guarantee
letter along with related documents to respective Branch via email.
6.9.4 Branch Managers or Assistant BMs must make sure the documents are signed and
stamped on all the pages after which the Credit Officer/CS Officer can submit the
Guarantee Letter to customer after print of the BG on the special BG letter.
6.9.5 BG Letterhead Number/Scan Copy of BG Letter on which the guarantee is issued must be
sent to Trade Finance via email for booking.
6.9.6 Credit Officer/CS Officer verifies the signatures by pencil on all the documents.
6.9.7 Branch confirmation/certification for the availability of original documents, copy of BG
and other related documents in safe custody of the branch to be sent to Trade Finance
via email. Such confirmation/certification must be signed by Credit/CS Officer and
BM/ABM plus branch stamp on AIB General Letterhead.
6.9.8 The original documents must be sent to Head Office –Trade Finance within 5 working days
via courier.

14
Chapter 7. Guarantee Confirmation:

To ensure authenticity of the guarantees issued by AIB, most of beneficiaries approach back for
confirmation. These guarantees shall be confirmed upon request by Trade Finance to ensure
authenticity of guarantees issued in favor of the beneficiaries.

15
Chapter 8. Guarantee Amendment:

8.1. Request Letter:

Applicant should provide dully signed and stamped amendment request letter for issuance of the
amendment mentioning exactly the fields which need amendment.
[Amendment application annexure 4]
8.2. One-Off Application:
For the purpose of presenting the amendment for approval the One-Off Application for
amendment will be prepared and recommended by Trade Finance Department, verified by CMLA
and approved by authorized authorities as per 5.1.1
8.3. Fund Blockage:
Trade Finance instructs TFL O. to block the required fund for the amendment in the system before
issuance of the amendment.
8.4. Document Submission for verification of CMLA:
Before obtaining approvals, document will be submitted to CMLA for their further verification.
8.5. Obtaining required Approvals:
Once documents are verified by CMLA required approvals will be taken in One-Off application by
Trade Finance.
8.6. Amendment Print & Submission:
Amendment will be printed in special letterheads by Trade Finance Stamped by CMLA and will
be submitted to applicant’s representative in original after obtaining receipt letter.
8.7. Booking instruction to TFL Operation:
Once amendment is submitted to client Trade Finance will instruct TFL O. department to book
the amendment in the system upon completion of which TFL O. will confirm back
to Trade Finance Dept.
8.8. Document submission for archive to CMLA:
Full set of amendment documents once completed will be submitted to CMLA for archive
purpose.
8.9. Obtaining Beneficiaries acceptance where applicable:
In case of amendment for change in beneficiary or amendment for a decrease in the guarantee
value before releasing the extra cash margin consent of beneficiary must be obtained by the

16
 bank. Guarantee officer must personally visit beneficiary and submit the amendment letter to
them in return should receive their acceptance letter.

17
Chapter 9. Cancellation:

9.1. Cancellation Request/Original BG:

Enabling AIB to cancel a guarantee in the system and reverse the cash margin client should
provide Original of the guarantee to the bank.
9.2. Lost Guarantee:
In case the original guarantee letter is lost, the party who lost the guarantee must be identified
and written confirmation must be obtained.
9.3. No Claim of Beneficiary:
Further to the original of bank guarantee the applicant should also provide a no claim letter from
the beneficiary. This letter is optional under Bid guarantees, however for the performance and
Advance Payment guarantees it is mandatory.
9.4. Cancellation Memo:
Trade Finance must prepare the cancellation memo approved by Head of department.
In case of guarantees other than Bid Guarantee, if No Claim is not provided by the beneficiary
cancellation of the guarantee must be approved by Head of Business Development.
9.5. Submission to CMLA:
Trade Finance submits the cancellation memo along with Original Guarantee and No Claim letter
to CMLA for further process.
9.6.Release of Guarantee:
CMLA after proper verification will instruct TFL O. department to cancel the guarantee in the
system and release cash margin.
In case of cross currency, the release date exchange rate will be applicable unless not indicated
in the cancellation memo.

18
Chapter 10. Claim

10.1. Receive of Demand/Claim letter from Guarantee Beneficiary:

In case of non performing by the contractor the beneficiary can claim the guaranteed amount
any time during validity of the guarantee.
A demand/claim under the guarantee shall be supported by such other documents as the
guarantee specifies, and in any event by a statement, by the beneficiary, indicating in what
respect the applicant is in breach of its obligations under the underlying relationship, unless
otherwise agreed by the parties. This statement may be in the demand or in a separate signed
document accompanying or identifying the demand.
Each presentation shall identify the guarantee under which it is made, such as by stating the
guarantor's reference number for the guarantee.
Note: A demand may be made for less than the full amount available ("partial demand"). And,
more than one demand ("multiple demands") may be made unless prohibited by the guarantee.

10.2. Verification of Demand/Claim letter:

Once beneficiary submit their claim under a bank guarantee following points should be checked
by Trade Finance:

10.2.1. The Validity:

The TF Officer should ensure that claim is received on or before expiry of the guarantee.
10.2.2. Effective Terms:
Usually, letter of guarantee shall be effective since it is issued, but in actual operations,
we often receive guarantees with effective terms. For example, advanced payment
guarantee would become effective after receiving the written confirmation that the
guarantor bank or the seller has received the buyer's advance payment, hence before
accepting a claim the guarantee should be checked for any effective term if available.
10.2.3. Claim authentication:
As mostly beneficiaries are not account holders of the bank, hence bank does not have
the responsibility of verification of signatures appearing in the claim letter and confirming
authenticity of the claim.
Note: Article 19 C of URDG 758 reflects that:
C. If the guarantee requires presentation of a document without stipulating whether it needs
to be signed, by whom it is to be issued or signed, or its data content, then:

19
 o the guarantor will accept the document as presented if its content appears to fulfil the function
of the document required by the guarantee and otherwise complies with article 19 (B), and

o if the document is signed, any signature will be accepted and no indication of name or
position of the signatory is necessary.

10.2.4. A demand is a non-complying demand if:

- it is for more than the amount available under the guarantee, or

- any supporting statement or other documents required by the guarantee indicate

amounts that in total are less than the amount demanded.

Conversely, any supporting statement or other document indicating an amount that is more than
the amount demanded does not make the demand a non-complying demand.

10.3. Time for examination of Demand:

As per article 20 A of URDG 758:

If a presentation of a demand does not indicate that it is to be completed later, the guarantor shall, within
five business days following the day of presentation, examine that demand and determine if it is a
complying demand. This period is not shortened or otherwise affected by the expiry of the guarantee on
or after the date of presentation. However, if the presentation indicates that it is to be completed later,
it need not to be examined until it is completed.

Note: For the purpose of this section, a business day means any day other than Friday and public holidays
in Afghanistan.

10.4. Rejecting a Demand:

When the bank rejects a demand, it shall give a single notice to that effect to the presenter of
the demand. The notice shall state:
- that the guarantor is rejecting the demand, and
- each discrepancy for which the guarantor rejects the demand.
The notice shall be sent without delay but not later than the close of the fifth business day
following the day of presentation.
10.5. Approval Memo for honoring the claim:
Once beneficiary’s claim is accepted a memo for invoking the guarantee claimed amount will be
prepared by Trade Finance and should be approved by HOCC

20
 10.6. Submission of claim document to CMLA:
Claim documents/memo will be submitted to CMLA for their further verification. Once verified
CMLA will instruct TFL O. to honor the claim.
10.7. Honoring the Claim:
TFL O. department will make the payment as per instruction mentioned in the claim memo and will
confirm their action back to Trade Finance and CMLA.

21
Chapter 11. Guarantee Expiry/Closure:

A guarantee expires in the following events:

a) The Date of Expiry (Upon the expiry, the guarantee shall become void irrespective of whether
or not the original guarantee is returned to the Bank for cancellation.)
b) Upon full payment of the guarantee
c) Upon cancellation of the guarantee

Referring point a) In case of Local guarantees AIB does not directly close the Guarantees upon expiry and
waits until it receives the original returned BG letter and No-Claim letter from the beneficiary (where
applicable), however in case of AIB’s guarantee under counter guarantee AIB may close the guarantee
after expiry of the counter guarantee and release liability of the counter guarantor upon their request
after expiry.

Chapter 12. Advising of Guarantee:

AIB as per it’s internal decision is not advising any guarantee or any messages related to the guarantees
to the beneficiaries instead all guarantees to be issued with responsibility.

Chapter 13. Exceptions:

Process of any exception case in contradiction with this procedure will be approved by CEO or HOCC.

Chapter 14. DAB Asset Classification Regulation:

Banks should issue a written notice of expiry of off-balance sheet commitments to its beneficiary, containing
that bank does not have any responsibility after expiry of the commitment and a copy of such notice shall be
filed subsequently.

After expiry of off-balance sheet items and if terms and conditions of commitments (LG and/or LC) are not met,
banks do not have further obligation and the off-balance sheet items shall be immediately written off from off-
balance sheet of the banks.

AIB policy is as per chapter 11.

22
Annexure 1:

23
24
Annexure 2:

25
Annexure 3:

26
Annexure 4:

27