What is Bank Guarantee Letter?

According to Vietnam Law on Credit Institution, and Circular 07/2015/TT-NHNN on bank guarantee, bank guarantee refers to a type of credit whereby the guarantor undertakes to act on behalf of the obligor to fulfill their financial obligations to the obligee in the event the obligor fails to fulfill or insufficiently fulfill their agreed-upon obligations to the obligee; the obligor must take on their debt obligations and repay the guarantor.

Guarantee commitment is the written document issued by the guarantor or the counter-guarantee issuing party or the guarantee-confirmation issuing party.

Letter of guarantee refers to the written commitment between the guarantor and the obligee to the guarantor’s fulfilling the financial obligation on behalf of the obligor in the event the obligor fails to fulfill or insufficiently fulfill agreed-upon obligations to the obligee.

To avoid confusion of bank, it is common to issue non conditional and irrevocable bank guarantee.  Having said that, the bank will release payment upon the first request from the obligee without the obligations to verify any contract non-performance.

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