Letters Of Guarantee

A letter of guarantee is a commitment issued by the Bank in favour of the beneficiary to ensure that the obligations undertaken by the debtor against the beneficiary will be fulfilled.

In other words, it is a type of contract in which the bank guarantees on behalf of an individual or legal entity, residing within the country, that the work or delivery obligations of the individual or legal entity will be carried out within a specified period of time and under certain conditions in terms of customs, tenders or the purchase or sale of goods. The bank guarantees to pay the recipient a specific amount under stipulated terms and conditions in the event of default or failure to fulfil contractual obligations or responsibilities.

Depending on what the letter of guarantee will be used for, it may be temporary, definite, advance-payment or unrestricted, made out in foreign currency or foreign currency indexed, or in TL, and may or may not have a validity period. Instead of interest, the bank collects commission fees at specified periods depending on the term and type of letter of guarantee.

External Guarantee

External guarantees are letters of guarantee issued by banks in favour of firms, and are addressed to the name of foreign organizations and corporations as the beneficiaries. This type of guarantee is by nature an irrevocable and unconditional payment commitment of the issuing bank upon first demand of the beneficiary of the letter.