Indirect Bank Guarantee Template for Indonesia

An Indirect Bank Guarantee is a specialized banking instrument that enables international parties to meet Indonesian requirements for local bank guarantees while maintaining relationships with foreign banks. Under Indonesian Banking Law No. 10/1998 and Bank Indonesia regulations, this tri-party arrangement provides a compliant solution for cross-border transactions requiring local financial backing.

When do you need this document?

You need an Indirect Bank Guarantee when your foreign bank cannot directly issue a guarantee acceptable to Indonesian beneficiaries or regulatory requirements. This commonly occurs in international construction projects where Indonesian law requires local bank guarantees, export-import transactions involving Indonesian companies, and foreign investment projects requiring performance or payment guarantees from Indonesian banks. The document is also essential when tender requirements specifically mandate guarantees from banks licensed in Indonesia, or when your business relationship is primarily with a foreign bank but you need to provide assurance to Indonesian parties.

Key legal considerations

The guarantee must clearly define the roles and liabilities of all three parties: the Principal (applicant), Counter-Guaranteeing Bank, and Indonesian Issuing Bank. Critical clauses include the guarantee amount and currency specifications, validity period with automatic extension provisions if needed, and precise calling conditions that trigger payment obligations. You must ensure the document includes proper indemnification clauses protecting the Indonesian bank, clear payment mechanisms specifying timeframes and procedures, and compliance with both Indonesian banking regulations and international banking practices. The guarantee should also address governing law provisions, typically Indonesian law for the local guarantee portion, and dispute resolution mechanisms acceptable to all parties.

Legal requirements in Indonesia

Under Indonesian Banking Law No. 10/1998 and Bank Indonesia Regulation No. 18/19/PBI/2016, Indirect Bank Guarantees must comply with specific formatting and content requirements. The Indonesian Issuing Bank must be licensed by Bank Indonesia and meet OJK capital adequacy requirements. The document must include mandatory disclosures about guarantee terms, clear identification of the underlying transaction, and compliance with foreign exchange regulations if involving foreign currency. OJK Regulation No. 40/POJK.03/2019 requires proper reporting of guarantee issuance, and the guarantee must conform to Bank Indonesia's standard formats and terminology. Additionally, the Counter-Guarantee arrangement must comply with international banking practices and may require approval from Bank Indonesia for certain transaction types or amounts exceeding specified thresholds.