A Bank Guarantee provides financial protection to the third party by ensuring that the bank will cover the payment or performance in the event that the applicant fails to meet their contractual obligations. By transferring the non-performance b burden from the applicant to the bank, this secure financial instrument reduce risk and offers peace of mind to all parties involved.
Why does it matter in Contracts?
Bank Guarantees are recommended as an alternative method to ensure the satisfaction of all parties involved in a transaction.
How Does a Bank Guarantee Work?
In the event that the applicant defaults, a Bank Guarantee calls for them to pay the outstanding amount. This kind of instrument can be essential in high-value transaction or when trust between parties is till being established.
Usually, the banks demand collateral or a cash deposit before they can provide a bank guarantee.
Why should you care?
Mitigates Risk: It guarantees payment or performance for the beneficiary, accordingly minimizing their dependence on the other party.
Builds Trust: Offering a Bank Guarantee will help to establish financial stability and dependability in a contract, which is particularly helpful when dealing with either new or foreign partners.
Common Types of Bank Guarantee in Myanmar
- Shipping Guarantee
- Performance Guarantee
- Bid Bond
- Standby Letter of Credit (SBLC)
- Advance Payment Guarantee:
Key Takeaway: A well-placed Bank Guarantee may be a contract lifesaver, however, it is crucial to ensure that the terms are precise. Both the value and the scope of Bank Guarantee should be carefully negotiated, and the circumstances under which it can be claimed should be made clear.
Have you used a Bank Guarantee in your contracts before? Share your experience or ask questions in the comments below!
How AMK & Thiha Can Help
At AMK & Thiha, we assist business with:
- Drafting & reviewing legally sound Bank Guarantee
- Resolving disputes related to non-performance and enforcement
- Advising on compliance with Myanmar’s banking regulations
- Representing clients in legal proceedings involving guarantees
