Bank Guarantee (BG)

Bank Guarantee (MT 760) is an irrevocable commitment, which is issued by a bank on behalf of its client who has concluded a contract to buy goods from a seller and promised to meet all financial obligations to the seller in case of default. In other words, a Bank Guarantee is a commitment of a bank on behalf of its client.

BG often helps companies to conduct transactions with parties they usually would never have the chance to deal with. Many suppliers often prefer to do business with clients, which have a BG because it removes the risk of non-payment for the goods they sell.

BGs can be issued for many purposes, for example, for credit enhancement of institutions that issue industrial development revenue bonds and commercial papers; to provide security for loans granted by third parties; to assure performance under construction or employment contracts; and to ensure the buyer fulfils financial obligations to its suppliers.