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Letter of Credit Guarantee

A Letter of Credit Guarantee protects a bank from commercial and/or political and/or sovereign risks related to a confirmed Letter of Credit.

The confirming bank applies for the guarantee, which is available also when the Letter of Credit is confirmed without the issuing bank's authorization or request.

Two alternative guarantee schemes are available: normal coverage and risk sharing.

Under the normal coverage scheme, the coverage can be 95 % for commercial and political risks. The remaining 5 % is a bank’s self-risk portion.

Under the risk-sharing scheme, the maximum coverage for commercial and political risks is 50%. In this case, the bank must assume a percentage of the risk determined by Finnvera, which is at least 15%. The bank may share the rest of its self-risk portion with other risk-takers.

In the normal coverage scheme, the premium is based on Finnvera's risk assessment. In the risk-sharing scheme, the premium is based directly on the confirmation fee charged by the confirming bank.

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