“The importance of bank guarantees in modern business (business environment in Serbia)”

In contemporary international payment transactions, there takes place frequent use of bank guarantees as collateral payment in commercial transactions. The bank guarantee is usually required when it comes to specific business agreements that require stronger commitment and assurance that all contractual obligations will be implemented exactly as indicated. Knowledge of the use of bank guarantees allows better negotiating position in making business, quicker response to the demands of public calls for tenders and the provision of their own claims. Because of its rapid and efficient implementation, the bank guarantee is one of the most commonly used collateral in international business.


Introduction
In the modern business environment, characterized by the spatial distance and the inability of the parties to perform a realistic assessment of the creditworthiness of a business partner, when it comes to commercial transactions, there is often a need for the use of instruments that secure payments. The reason for this is the fact that, in carrying out trade transactions, participants in international payments want for the security in the fulfillment of mutual contractual obligations to be as big as possible. In such circumstances, it is important to choose instruments of payment and security, which largely provide safety and minimize the effects of risk factors, whereby one of the most important instruments is the bank guarantee. Due to its lack of accessory, its abstractness and the fact that a quick and simple realization procedure allows coverage of a large number of risks, the subject of this paper will be legal regulation of bank guarantees and analysis of their use in Serbia. Through the presentation of the business environment in Serbia, we aim to provide a credible picture of how the use of bank guarantees represents an important instrument to ensure the enforcement of contractual obligations and payments. The authors believe that the existing legislation in this area is harmonized, but also give a recommendation that, in this regard, legal theory must follow the ways and needs of modern industrial practices. Therefore, legal activity in the coming period should be focused on the adoption of new or amendment of existing legislation in the field of regulation of the bank guarantee which, in comparison to other security instruments, represent the most effective mean of protection against financial risks.

Literature review
Different literature sources were used for the analysis of the selected topic. In his work, Pavicevic (1999) dealt with the definition of the concept of the bank guarantee and the analysis of its importance in international trade. Furthermore, the subject of his analysis was the distinguishing of bank guarantees from other similar legal institutes and pointing out the advantages it has over other means of security. In their book, Ariana & Damirchiyeva (2013) orient themselves towards the research of the risks related to international payments and the manner of its operation. A special place in their analysis has the study of bank guarantees as one of the most important instruments to ensure the enforcement of contractual obligations and payments in international payment transactions. Bertrans (2004) deals with the classification of the types of bank guarantees, as well as the basic criteria for their classification. Accordingly, in his book, he gives an overview of the most important types of bank guarantees and points to the advantages it has over other collateral in international business. Knezevic & Lukic (2012) analyze the representation of bank guarantees in the modern banking business. The subject of their analysis are legal aspects of bank guarantees, but also a parallel view of their distribution and use in Serbia and neighboring countries. Micovic (2010) deals with the legal nature of the bank guarantee and, in his work, he gives an overview of the legal regulation of bank guarantee in common and civil law.
Vitez (2011) deals with the legal relations of the participants in the guarantee business, namely: the relationship between the creditor and the debtor from the core business, the legal relationship between the guarantor bank and the client, with special emphasis on the conclusion of agreements on the issuance of bank guarantees, the legal nature of the contract on the issuance of bank guarantees, as well as the rights and obligations of the parties that arise from this contract. Spalevic (2013) analyzes a bank guarantee as security from financial risks in the Republic of Serbia. Given the large number of risks affecting the company's operations in international traffic, management and risk control are increasingly becoming the central part of the strategic management of enterprises and the condition of its survival in the market. One of the most important instruments of security from risks in international business is certainly the bank guarantee. Knezevic (2015) deals with the legal regulation of the institute of bank guarantees in Serbia and, in his work, he gives an overview of the current situation and suggestions for some new legal solutions that should be made in order for the legal nature of the bank guarantee to be more fully defined.
In addition to these sources of literature and in order to provide a more effective analysis of the research subject, the paper used the financial statements of banks in Serbia and the laws regulating this area.

Methodology
During the research process, the issue of bank guarantees will be discussed in an interdisciplinary manner, in order to comprehensively clarify a number of issues and propose appropriate solutions associated with these important instruments of security of payment in international trade. In accordance with the subject of the research, qualitative research methodology will be applied in this work. In the definition of the concept of the bank guarantee, when analyzing its legal nature and in identifying its key features, analytical scientific methods and procedures of descriptive and explicative analysis will be used.
Using the appropriate domestic and foreign literature will be the basis for pointing out the connection and mutual dependence of the studied phenomenon, and the source documents, studies, reports, statistical documentation and other sources will be used as the primary basis for the analysis of the importance of the bank guarantee in modern business.
In addition to qualitative, quantitative research methodology based on the use and explanation of relevant quantitative data will be applied in this paper. In this regard, it uses the corresponding quantitative methods, as follows: econometric models and methods and statistical analysis. For clarity of presentation of analyzed issues, different tables and graphs will be used.
Finally, methods of synthesis and generalization methods should enable us to summarize and link all relevant data and carry out the appropriate conclusions about the selected object of research.

The importance of bank guarantees in international business
The bank guarantee represents a unilateral legal transaction by which a bank guarantor undertakes an obligation to guarantee to pay the beneficiary a certain amount of money specified in the guarantee if certain conditions are fulfilled, or if the debtor from the original contract does not fulfill or fulfills his contractual obligations improperly (Pavicevic, 1999, p. 129).
The bank guarantee is one of the most commonly used means of security that provides significant benefits to the participants in international business. By issuing guarantees, the interests of the seller are protected since the bank guarantee provides the collection of sold and exported goods. In international business, sellers are usually not aware of the financial situation of the customer and the results of his operations and, therefore, the sales contract with the unknown business partner contains certain risks, especially when it comes to the shipment of good without securing its payment. By opening a bank guarantee, this risk disappears, because aside from the buyer from the sales contract, the guarantor bank which issued the guarantee is also directly responsible towards the seller, and the seller will trust the guarantor bank and he is sure that the bank will pay him the amount from the guarantee if he fulfills the conditions specified in the contract (Ariana & Damirchiyeva, 2013, p. 436).
As an independent legal transaction, banking guarantee gained great importance in matters of international trade in recent decades, so today we can hardly imagine and conclude any serious contract with a foreign partner without its fulfillment being provided through a bank guarantee.
Compared to other means of personal security, bank guarantee proves to be more suitable, since due to its abstractness and lack of accessory it provides a broader protection of economic interests of the creditors. Thus, in addition to the risk of insolvency of the debtor and voluntary refusal of fulfilling the obligations, the bank guarantee may cover other types of risk such as: the risks of force majeure, administrative restrictions and risks of invalidity of the main business. These comparative advantages arising from the lack of accessory and from the abstractness of the bank guarantee, are accompanied by a relatively simple procedure of its realization that allows fast and uncomplicated payment claims (Bertrans, 2004, p. 47) Due to such characteristics, bank guarantee occurs as an institution that significantly influences the improvement of international economic relations. In modern conditions of ignorance and growing distrust among the participants on the global market, when it comes to all major auction and other business deals, contracts should be entered into primarily with well-known and reliable business entities from developed countries, even if their offers are not the best. With bank guarantees, companies from the less developed countries get a great deal on the competitiveness of their offerings in international affairs, because with their acceptance contractual partners are not placed in a less advantageous position in terms of risk of realization of their claims. Bank guarantees are, thus, creating a higher level of security of creditors and significantly affecting the stabilization of relations in the international market.

The bank guarantee as an instrument to secure payments in Serbia
Bank guarantees are one of the most important instruments of security in international business and, consequently, in Serbia. Granting of guarantees is one of the most important banking activities, in which banks must thoroughly examine transaction and the risk rating of their clients.
At the end of 2015, Serbian banking sector consisted of 30 banks, with an organizational network of 1.730 business units, which employed 24.257 persons.  Source: NBS -National Bank of Serbia.
As you may see in the table, the most significant off-balance sheet items that carry credit risk at the end of 2015 in banks in Serbia are claims from derivatives and guarantees and other sureties. Bank guarantees are contracts that oblige the bank as an issuer of the guarantee to make a payment or compensate the guarantee beneficiary for the loss incurred in case a certain creditor fails to perform its obligations in accordance with the terms of the contract. In this way, by issuing a guarantee the bank exposes itself to related credit risks, which could be overcome by the same control processes and procedures. In the normal course of business, banks in Serbia mostly approve financial guarantees, consisting of payable and performance guarantees in dinars and in foreign currency. Source: financial statements of banks.

Fig. 1. Performance guarantees approved in 2015
Payable guarantees guarantee regular payment obligations under the contract of main business, for payment of liabilities for received loans or for the orderly settlement of other financial obligations from business operations. In accordance with that, the most common payable guarantees that banks in Serbia approve of are: the guarantee of payment, the guarantee to secure loans and customs guarantees.
In addition, other frequent guarantees are guarantees for security deposits during the participation in the privatization of enterprises and guarantees issued in favor of the Development Fund of Republic of Serbia for the repayment of loans (Knezevic & Lukic, 2012, p. 47). Source: financial statements of banks.

Fig. 2. Approved payable guarantees in 2015
Based on the given analysis, we can conclude that bank guarantees in Serbia are an important instrument for ensuring the enforcement of contractual obligations and payments. Due to the low liquidity of the economy, companies in Serbia are facing with partial or complete inability to collect receivables in their business operations, which is why it can be argued that the bank guarantee will be one of the most frequently used security instruments in the future.

The legal framework of bank guarantees
Banking operations are separate economic activities whose main object of business is the turnover. Banking operations are legal transactions concluded between banking organizations concerning the legal turnover of money and performing business services. They are carried out according to the rules of the banking profession andother authorized entities instead of banks can participate in them, but the rules of banking operations (business) still apply to them (Micovic, 2010, p. 485).
Until the adoption of the Law on Obligatory Relations (Official Gazette of SFRJ, no. 29/78, 39/85, 45/89decision USJ and 57/89, Official Gazette of SRJ, no. 31/93 and Official Gazette of SCG, no. 1/2003 -Constitutional Charter), the legal system in Serbia has not adequately been regulating the affairs of the bank guarantee (bank guarantee operations/business). Legal issues of bank guarantees were resolved by using an analogous application of certain existing solutions in comparative law, as well as by insufficiently shaped domestic rules of customary law. With the adoption of the Law on Obligatory Relations, law in Serbia entered the order of the few legal systems in the world, which have been regulating the matter of bank guarantees by using substantial and legal norms.
The law defines the obligations of the bank towards the holder of a guarantee, whereas if the third party fails to fulfill the obligation at maturity date, the bank would settle the obligation if the conditions specified in the guarantee are fulfilled. The law prescribes the written form of a bank guarantee as a condition of validity and its cash character. There is a possibility of ceding the rights from guarantees, along with the transfer of receivables provided by the guarantee. The law stipulates a special type of bank guarantee which contains the clause "without protest", "first-call" or other words with the same meaning, which specifies that when it comes to this type of bank guarantee, the bank cannot point out those kinds of objections to the creditor from the main business, which the principal, as a debtor, has towards the guarantee beneficiary (Law on Obligatory Relations, Art. 1087).
Substantive legal provisions regulate the obligation of recourse of cash amount of the bank guarantee by the principal towards the guarantor bank that carried out the payment of the guarantee. The law provides an exceptional possibility of recourse by the principal from the beneficiary of the bank guarantee only in case when the beneficiary unjustifiably collects the guarantee from the bank, due to justified complaints from the principal towards him.
In the context of the above said statement, it follows that the business regarding the bank guarantee must be seen as an independent and non-accessory legal transaction, especially in the case of doing business in international trade. Along with laws as sources of law in domestic turnover, there are also bylaws. One of them is the Rule on compulsory elements of tender documentation in public procurement procedures, stipulating the mandatory elements of tender documentation in the public procurement process. Among the above-mentioned elements there are types of financial security provided, with special attention paid to the bank guarantee as a mean of security in public procurement (Tomic, 2009, p. 28 According to the draft of the new Civil Code, the institute of the bank guarantee should not be regulated in the section on banking activities, because this is not only the institute of Banking Law, but more specifically a specific personal security instrument, where the role of the guarantor doesn't necessarily imply the bank as its operator, but also every other economic entity.

Conclusion
The permanent increase in the volume of business activities and complexity of business relations between economic entities has resulted in the increasing problem of security claims and uncertainty of business. Bearing in mind the fact that the entities participating in the implementation of commodity and non-commodity turnover are faced with elements of insecurity and uncertainty, stemming not only from their financial position, but more often from the fact the various institutional factors, the paper emphasized the importance of using bank guarantees as security instruments in modern turnover. In addition to that, the paper provides an analysis of the use and of legal regulation of bank guarantees in Serbia. Serbia belongs to a narrow circle of countries in which the bank guarantee is regulated by law in a general manner.
Modern commodity-monetary transactions are characterized by abundance of subjects, their mutual ignorance and mistrust, as well as a variety of business risks. In these conditions, bank guarantee has affirmed itself as a very important and indispensable mean of security, guaranteeing maximum security to both the beneficiary and the principal in the realization of the contracted transaction.