Bank Guarantee (MT- 760) is an irrevocable commitment, which is issued by a bank on behalf of its client who has concluded a contract to buy goods from a seller and promised to meet all financial obligations to the seller in case of default. In other words, a Bank Guarantee is a commitment of a bank on behalf of its client.
A Bank Guarantee often helps companies to conduct transactions with parties they usually would never have the chance to deal with. Many suppliers often prefer to do business with clients, which have a Bank Guarantee because it removes the risk that they will not get the proper payment for the goods they sell.
Bank Guarantees can be issued for many purposes, for example, for credit enhancement of institutions that issue industrial development revenue bonds and commercial papers; to provide security for loans granted by third parties; to assure performance under construction or employment contracts; and to ensure the buyer fulfills financial obligations to its suppliers.
Bank Comfort Letter BCL commonly referred to as a BCL is typically used in a commodities transaction to demonstrate the financial capability of the buyer. It is also sometimes referred to as a Bank Capability Letter. A BCL is one type of a Proof of Funds (POF) which can be furnished by a buyer or requested by a seller to complete a transaction. Various other types of POFs such as SWIFT messages, or a MT 799 SWIFT message may be utilized for the same purpose.
BCL is issued by a bank on behalf of their customer who has entered in a contract to purchase huge merchandise/commodities from a supplier confirming their financial capability to carry out the transaction. It also shows that the buyer has sufficient funds or financially capable to complete the business deal. However, it should be clear that the Bank Comfort Letter does not mean any assurance of payment.
BCL is a statement of fact not a financial obligation or commitment given by a bank. BCL is not at all equivalent to a Letter of Readiness (RWA). BCL is merely an authenticated swift message from the buyer’s bank that confirms financial capability of the buyer in terms of cash or credit facility, to pay for the goods they want to buy.