What is a Letter of Guarantee?

A Letter of Guarantee (L/G or Bank Guarantee Letter) is a legally binding document issued by a bank (guarantor) promising to pay a defined amount to a beneficiary if the principal (bank's customer) defaults on a specified obligation. It is an independent undertaking separate from the underlying contract.

Common types

• Performance Guarantee: Secures contractual performance obligations.
• Bid Bond / Tender Guarantee: Ensures the bidder will sign the contract if awarded.
• Advance Payment Guarantee: Protects down payments against non-performance.
• Payment Guarantee: Assures settlement of financial obligations.
• Warranty / Maintenance Bond: Covers post-delivery warranty obligations.

In Vietnamese banking: Thư bảo lãnh ngân hàng or Bảo lãnh ngân hàng. Governed by NHNN Circular 07/2015 domestically, and ICC URDG 758 internationally. Related terms: Standby L/C, Counter-Guarantee, Guarantee Fee.

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