The Guarantee is a trade finance product which is related to the exchange of goods or services. Although the product does not contain a fixed maturity date, the bank internally reviews the product on a regular basis. The contract between the issuing bank and the Instructing Party includes a contractual provision that allows the issuing bank to effectively exit the risk position incurred via the Guarantee. The contractual provision has the following effect:  

If as part of its regular review the issuing bank decides to exit the risk position, the following options are available to the bank:

• the bank may require the Instructing Party to provide cash collateral to the bank in the full amount of the Guarantee; or 

• the bank may require the Instructing Party to provide a counter guarantee on first demand from another bank which the bank may draw in case it has to pay under the Guarantee it has issued; or

• the bank may require the Instructing Party to ensure that another issuing bank replaces the bank’s Guarantee in favour of the beneficiary and that the beneficiary releases the bank therefore from its liabilities under the bank’s Guarantee. 

In each of these cases the issuing bank will have effectively exited the risk position it so far had. 

A trade finance classification due to the presence of the above mentioned rights of the issuing bank towards the Instructing Party is consistent to previous EBA guidance in the context of contractual options allowing the bank to exit a risk position (e.g. via termination). For example, EBA Q&A 2014_883 states that a termination right reduces the remaining residual maturity in the context of an exposure without a contractual maturity. In addition, EBA Q&A 2013_687 states that a prolongation decision of the bank does not increase the maturity.