GIEK can guarantee confirmed letters of credit issued in connection with the export of Norwegian goods and services. GIEK’s guarantee to the bank applies to a portion of the amount (counter guarantee).
Advantages of a letter of credit
- Secure means of payment
- Ability to control delivery time
- Avoid prepayment
- Seller can begin production
- Terms of payment can vary
- More favourable trade terms in certain markets
- Bank guarantees the buyer’s ability to pay
- Uniform rules through the International Chamber of Commerce (ICC)
What does the guarantee cover?
- GIEK mitigates the risk that the exporter’s bank bears in relation to the buyer’s bank in an export case.
- GIEK’s guarantee covers a portion of the loss the bank would incur if the buyer’s bank were to fail to pay the letter of credit amount/guaranteed amount on the due date.
The guarantee can cover up to 50% of the bank’s risk.
In letter of credit transactions, the banks concern themselves with documents and not goods. If the associated goods do not satisfy the importer’s requirements with regard to quality, etc., the importer must take the matter up directly with the exporter.
How does the guarantee work?
How much does it cost?
GIEK charges a premium upon issuing a guarantee.
The premium is determined on the basis of the repayment period, and is also affected by:
Buyer’s creditworthiness: GIEK assesses customer creditworthiness, i.e. the probability of payment by the customer.
Political conditions in the buyer’s country: GIEK assesses risk of political unrest arising in foreign buyer’s country.
How to apply?