Non-Refusal to Confiscate Bank Guarantee Letters Upon Opening Bankruptcy Proceedings and Suspending Claims Against the Ordering Customer

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