Bank Guarantees
A bank guarantee could be defined as a bank’s irrevocable obligation to pay a specific amount in the case of noncompliance of a contract by a third party.
The guarantee is an obligation subject to noncompliance of the existing main debt in the contractual relationship between the creditor and the main debtor. According to its terms, banks must pay provided that the conditions stated in the text are met. As a rule, guarantees are subject to the legislation on the subject in the country of the issuing bank.
Bank guarantees may be issued in two ways:
- Directly by an entity in favor of a foreign exporter.
- Indirectly, when said entity requires that its correspondent in the importer’s country issue, on its account, the guarantee in favor of said importer.
