Regulatory Alerts2020-12-06
Non-Refusal to Confiscate Bank Guarantee Letters Upon Opening Bankruptcy Proceedings and Suspending Claims Against the Ordering Customer
The Saudi Central Bank (SAMA) directs all domestic banks and financial institutions to cease refusing the confiscation of bank guarantee letters when bankruptcy proceedings are opened against the ordering customer. The circular mandates that financial institutions must continue fulfilling their obligations under these letters according to their stipulated terms, preserving the independent and direct nature of bank guarantees. This directive ensures that suspending claims against bankrupt customers does not undermine the enforceability, credit reputation, or transactional stability of bank guarantees in the Kingdom.
Saudi Central Bank
Reference No.: 42025830 Date: 1442/04/21 Attachments: None
Circular
To the Esteemed, Peace, mercy, and blessings of God be upon you,
Subject: Non-Refusal to Confiscate Bank Guarantee Letters Upon Opening Bankruptcy Proceedings and Suspending Claims Against the Customer Ordering the Issuance of the Letter.
In light of the Saudi Central Bank's (SAMA) regulatory and supervisory role over the banking sector, and to preserve financial and economic stability in the Kingdom, and based on established judicial principles and stable banking practices regarding bank guarantee letters—which represent an original, direct, and independent obligation of the issuing bank, separate from the circumstances surrounding the customer ordering their issuance—this type of credit instrument enjoys acceptance and trust among beneficiaries in both the public and private sectors. Conversely, acting against this principle affects the Kingdom's credit reputation and transaction stability.
Accordingly; after coordination with relevant competent authorities; the Saudi Central Bank confirms to all banks and financial institutions operating in the Kingdom that they shall not refrain from confiscating bank guarantee letters due to the opening of bankruptcy proceedings and the suspension of claims against the customer ordering the issuance of the letter, and that banks and financial institutions must continue to fulfill their obligations as stipulated in the terms and conditions of the bank guarantee letter.
For information and necessary action.
Yours sincerely,
Fahd bin Ibrahim Al-Shathri Deputy Governor for Supervision
Distribution Scope:
- Banks and financial institutions operating in the Kingdom.
P.O. Box 2992, Riyadh 11169, Kingdom of Saudi Arabia | Tel: +966 11 4633000