Letter of Guarantee is a promise by the bank independent of the underlying commercial transaction between the applicant and beneficiary. Issued directly in favor of the Beneficiary, the Bank is bound to make payment without delay, when it receives a demand that complies with the terms of the Guarantee.
Guarantees issued by Riyad Bank is called “Direct Guarantee” and if instructions are given by Riyad Bank to another bank it is called “Counter-Guarantee”, whilst to issue the guarantee there at, is an “Indirect Guarantee”.
Following are the main types of Letters of Guarantee:
A Bid or Tender Bond ensures that the bidder submits realistic bids and deters the bidder from rejecting to perform, in case the contract is awarded to them
An Advance Payment Bond ensures repayment of an agreed percentage of the contract amount, if the supplier does not fulfill its contractual obligations
A Performance Bond is issued to pay the principal, the agreed amount of the Bond, in case of failure of the contractor to perform the contractual obligations, under the contract awarded by the principal