Products offered to customers with a payment obligation pledge and guarantee to the third party upon request, locally and internationally.

This includes:

  • Letters of credits and bills of collection, whether payment is deferred or at sight.
  • Guarantees that include tender guarantee, advance payment guarantee, performance guarantee and maintenance and payment guarantees.

A Letter of Credit (L/C), also called a Documentary Credit, is a commitment issued by a bank for the account of a buyer (applicant), or for its own account, to pay a beneficiary the value of the draft and/or documents. Payment is made, provided that the buyer and seller comply with the terms and conditions of the Letter of Credit.

Under a Letter of Credit, a bank substitutes its promise to pay for that of the buyer. Therefore, when a seller/exporter is the beneficiary of a Letter of Credit, the seller/exporter does not have to depend on the credit standing of the buyer because the seller/exporter will be paid by a bank.

Under a Letter of Credit, payment is made when the seller/exporter presents documents that are specified in the Letter of Credit and that comply with its terms.

Due to the nature of international trade business, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of Letters of Credit has become a very important aspect of international trade finance.

Letter of Credit Benefits

  • The seller receives the value of the goods from the issuing bank upon presenting complying shipping documents without having to wait for the buyer to receive the goods.
  • The buyer has a guarantee to be used as a cover-up vs. another credit (back-to-back).
  • The buyer has the reassurance that the Bank can refuse to pay if the seller does not comply with the specific terms of the Letter of Credit
  • The buyer can obtain a guarantee by using banking facilities and refinancing “buyers’ facilities”.
  • It facilitates business and trade procedures.

A Guarantee means giving something as security. A Bank Guarantee is offered by the Bank as a means of surety for different business obligations on behalf of its customers within certain regulations. It is generally a promise made by the Bank to any third party to undertake the payment risk on behalf of its customers.

A Bank Guarantee is given on a contractual obligation between the Bank and its customers. Such guarantees are widely used in business and personal transactions to protect the third party from any financial losses.

Guarantee Parties

  • First party: Bank Client (e.g., company/purchaser).
  • Second Party: LG issuing bank; the source that issues the pledge to pay for the operation or goods during a certain period and for a specific purpose.
  • Third Party: The beneficiary of the guarantee.

Types of Guarantees

  • Tender Guarantee (also called a Tender Bond or Bid Bond): Issued for a customer who is a tender participant during the tender processes for a percentage of tender or specific amount.
  • Performance Guarantee: Issued for the purpose of proper implementation of a project and the technical specifications agreed upon, and is often worth 10% of the contract value and expire at the end of the project.
  • Maintenance Guarantee: Usually issued for a period of a year from the date of delivery of the project to ensure that no problems occur during the implementation process, and is often valued at 5% of the contract value.
  • Advanced Payment Guarantee: Issued in order to provide liquidity to the contractor to allow implementation of the project as quickly as necessary, and represents a certain percentage depending on the agreement concluded between the company and the owner.