CAN A BANK ISSUE A PHYSICAL BANK GUARANTEE WITHOUT LOCAL PRESENCE?

INTRO

In practice, bank guarantees are often treated as if they must be issued or advised through a local bank in the beneficiary’s country. This assumption frequently leads to confusion between legal possibility and market or tender requirements, especially when physical bank guarantees are involved.

The following question raises a simple but important issue: Can a bank issue a physical bank guarantee in favour of a foreign beneficiary without having any presence in that country and without involving a local bank?

 Mr. Old Man answers below.

QUESTION

Hi Mr. Old Man,

I have a query regarding the issuance of a physical bank guarantee.

Can a bank in Country A issue a bank guarantee in favour of a beneficiary in Country B where the issuing bank does not have any presence in that country, and without involving any local bank?

Thank you & regards,

Alok Pathak

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ANSWER

Dear Alok,

Thank you for your question.

My short and clear answer is: YES.

A bank in Country A may issue a physical bank guarantee in favour of a beneficiary in Country B even if it has no branch, subsidiary, or representative office in that country, and without involving any local bank as an issuing or counter-guaranteeing bank.

1. How a physical bank guarantee is issued

The issuing bank may:

• Issue a signed and sealed paper bank guarantee, and
• Send it directly to the beneficiary by courier, or
• Send it through the beneficiary’s bank for onward delivery.

In all cases, the guarantee remains a direct undertaking of the issuing bank, and no local bank assumes any guarantee obligation.

 Verification and fraud risk

Whether the physical guarantee is sent directly or via the beneficiary’s bank, verification of the issuing bank’s signatures and signing authority is required.

Because of the risk of fraud, particularly in cross-border transactions, a beneficiary may refuse to accept a physical bank guarantee and instead require that the guarantee be advised through the banking system.

3. Use of SWIFT MT760 – market practice, not a requirement

As a matter of market practice, where the beneficiary requires bank-to-bank authentication, the issuing bank may choose to issue or advise the guarantee via SWIFT MT760.

In such cases:

• Intermediary and advising banks act purely as communication channels
• They do not assume any payment or guarantee obligation
• Guarantees relayed through multiple intermediary banks may raise concerns and be treated as a red flag by beneficiaries

It should be noted that SWIFT is only a delivery and authentication channel.

A bank guarantee is a legal undertaking, not a SWIFT message.

4. Practical reality in bidding and tenders – local bank requirement

In bidding or tender situations, it is very common for the beneficiary or tendering authority to insist that the bank guarantee be issued by a local bank in the beneficiary’s country.

In such cases, although a foreign bank could legally issue a guarantee directly, it cannot do so in practice because it would not meet the tender requirements.

The usual structure is as follows:

• The bank in Country A issues a counter-guarantee in favour of a local bank in Country B
• The local bank in Country B then issues the bank guarantee in favour of the beneficiary

These are two separate and independent undertakings:

• The counter-guarantee (Bank A → Bank B)
• The local guarantee (Bank B → Beneficiary)

Both are commonly subject to URDG 758, unless otherwise agreed.

This structure reflects commercial and legal enforceability concerns, not a lack of validity of foreign-issued guarantees.

I hope this clarifies both the legal position and the practical reality of bank guarantee issuance.

Best regards,

Mr. Old Man