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Contracts & Pricing

Bank Guarantee

A bank guarantee is a promise from a bank to pay a beneficiary a stated amount if the bank's customer fails to meet a defined obligation.

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In trade and procurement, a bank guarantee gives the buyer or seller assurance that they will be compensated if the other party defaults. Common types include performance guarantees, advance-payment guarantees and bid or tender guarantees, each covering a specific risk in the transaction.

Because the bank stands behind the obligation, a guarantee reduces counterparty risk and can substitute for a cash deposit, freeing up working capital. In Malaysia, bank guarantees are widely used in construction, tenders and supply contracts, and their amount, validity and claim conditions are specified precisely so both parties know when the guarantee can be called.

Frequently asked questions

What is a bank guarantee?
A bank guarantee is a bank's promise to pay a beneficiary a set amount if its customer fails to meet a defined obligation, reducing counterparty risk in a transaction.
What is a bank guarantee used for in procurement?
It secures obligations such as contract performance, advance payments or tender bids, giving the other party confidence and often replacing the need for a cash deposit.

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