Letter of Guarantee
The Letter of Guarantee (L/G) is an international trade product/ service that properly meets the needs of the buyers, importers or project owners in securing their contractual agreements with the sellers, exporters or contracting companies. It has therefore become a standard requirement and due to its wide usage, its purpose has expanded to various other types of payment obligations.
A Letter of Guarantee is a written undertaking given by a bank (The Guarantor) for the payment of a stated amount of money (letter of guarantee value) to another party (Beneficiary or Oblige) on presentation in conformity with the terms of the undertaking of a written demand for payment and other documents as may be specified in the guarantee at the request or on the instructions and under the liability of a party/ bank (the principal/the instructing party).
The main purpose of this product is to guarantee payment to the beneficiary regardless of any objection or contestation from any other party.
The Letter of Guarantee by its nature is independent from the underlying project or contract described in it, therefore it is the issuing bank obligation to pay in accordance with the terms of the guarantee only.
There are various types of guarantees as described below:
- Bid Bond
- Performance/ Final Deposit Bond
- Advance Payment Bond
These are contract bonds which are issued under government or private sector projects for the purpose of supply of goods, machinery or equipment, erection, cleaning or maintenance services, etc.
- Financial Guarantee: A guarantee for payment of other obligations, e.g. payment of custom duties
- Shipping Guarantee (under a Letter of Credit or a Documentary Collection): It is issued in favor of the shipping agent or the airline for the clearance of goods prior to the arrival of the relevant shipping documents
- Counter-Guarantees: These guarantees are issued based on acceptable counter-guarantees received from foreign banks subject to our Bank credit policy requirements
- Advising Guarantees: They are issued by foreign banks and are advised through our Bank
- All correspondences between the issuing bank (The Guarantor) and the beneficiary are routed through our Bank (advising bank) only.