Letter of Guarantee

Letter of Guarantee

The Bank of Baghdad issues bank guarantees tailored to the needs of its customers, including institutions, companies and individuals engaged in various types of business.


Service Description

An undertaking issued by the Bank at the request of its customer (order) to pay the value of the guarantee or part of it to another person (beneficiary) without restriction or condition, if so requested within the period indicated in the letter. The letter of guarantee states the purpose for which it is issued.

Features and benefits

  •     Competitive commission rates.
  •     Guarantee the customer’s participation in bids, sales contracts, and tenders.
  •       Easy renewal of guarantees.
  •       Mitigated financial risks.
  •       Internationally accepted.
  •      Guaranteed payment.

Most important types of letters of guarantee

  1. Tender Guarantee

The main purpose of this letter is to ensure the seriousness of the bidder and his commitment to signing the performance contract. This type is the most common type of guarantees and expires once the bid is awarded to bidders.

  1. Performance Guarantee

The customer replaces the tender guarantee with this letter when the bid or tender is awarded to it and upon signing the performance contract. The performance guarantee stays valid for the period agreed upon in the contract until the beneficiary is satisfied with good performance. The guarantee should be confiscated if the customer fails to fulfill its obligations to complete the project or perform the contract.

  1. Maintenance guarantee

After the implementation of the project or the delivery of equipment, or any similar work, as agreed upon, the beneficiary may request the customer to submit a letter of maintenance guarantee for a specified period in return for refunding the performance guarantee. On the other hand, the customer is requested to submit a letter of maintenance guarantee. If the customer fails to provide this guarantee, the beneficiary may order the bank to confiscate the performance guarantee for its interest.

  1. Advance Payment Guarantee

If the project to be performed requires huge financial resources that are not available with the customer, the customer and the owner of the project agree on finance by providing the customer with advance payments for the project to provide the cash needed for the customer to commence work. In order for this entity to ensure the customer commitment to refund the advance payment, in the event of non-performance, the customer is required to submit a bank letter of guarantee for this purpose. This guarantee is reduced by a percentage equal to the project completion phases.