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The commitment by the bank (guarantor) to compensate for any losses incurred on the basis of failure to fulfill the obligations is called External Guarantees or Letters of Guarantee. When issuing a letter of guarantee, the bank undertakes an obligation against the beneficiary to fulfill an obligation (e.g. payment, delivery of goods, services) by the third party arising from a contractual agreement between the beneficiary and the third party. If the contractual obligation is not fulfilled, the bank may be held liable for the payment of any amount up to the maximum amount for which the guarantee has been issued.

Letters of guarantee can be issued in Turkish Lira or other stable currencies without an expiration date. Letters of guarantee can be issued on a variety of subjects, such as the purchase of goods, concession agreement, construction, customs procedures, court decisions and tax issues.

Counter Guarantee

Counter-guarantees usually function as collaterals from the bank to bank. If the applicant's bank is not regarded as an acceptable guarantor by the beneficiary, the bank of the applicant may issue a counter-guarantee in favor of another bank acceptable to the beneficiary in order to ensure that the collateral is regulated by another admissible bank.

Types of Letter of Guarantee

  • Performance Bond
  • Provisional Guarantee
  • Advance Payment Guarantee
  • Payment Guarantee
  • Guarantee Bond
  • Standby Letter of Credit

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