Legal Responsibility of Bank towards the Sponsor in Bank Credit Agreements

Abstract

This paper presents the legal responsibility of bank towards the sponsor in bank credit agreements. For the significant risks faced by the bank when providing credit facilities, the bank requires the customer requesting credit guarantees. Specific to grant him the amount of credit, the most important of these guarantees personal guarantees as the presence of a guarantor for the customer. Here the responsibility of the bank is not limited. Towards his client only, but this responsibility extends towards the sponsor of this customer as well, although the sponsor is not a party to the contract, but the credit relationship is of special importance, as it did not deal with the bank except to guarantee the customer. Bank loans are a form of direct credit, which is providing a measure of cash to the customer, who also includes financial credits, discounting commercial papers, and bank loans. There are three types, which are short-term loans, medium-term loans, and long-term loans.The importance of the risk management process appears clearly only in medium or long term loans, because the risks increase as the length of the loan increases, so risk management is all operations. And previous or subsequent procedures to verify the risks of bank loans, which are carried out by the entity. The bank is competent to avoid or limit losses caused by these risks. The bank’s responsibility to manage the risk of its loans entails several duties, which are represented in two stages. Before granting the loan, he must inquire about his customer, his financial fill and the guarantees provided by him and the terms of the loan are compatible with the strategy followed in the bank, but after granting the loan, he must follow-up on the latter. Inquiries and follow-up are considered a means to avoid bank loan risks, and finally managing loan risks upon verification, which consists of using methods to confront these risks, which are either to mitigate them by using multiple means, the most important of which are guarantees provided by the customer, or to transfer it to others, which is insurance on loans, the securitization of these loans and the use of derivative contracts finance.