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Bank guarantee transactions declined to zero in Azerbaijan

16 December 2008 12:59 (UTC +04:00)

The central bank said the guarantees issued by commercial banks stood at AZN 18.87 million as at November 1, 2007 and AZN 17.37 million as at January 1, 2008 and AZN 0.54 million as at October 1, 2008.
In addition, the transactions on letters of credits reached AZN 37.35 million, up 3.1 times on a year ago, up 3 times on early this year and 4% on a month ago.
A letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the sellerâ€™s bank. This letter would substitute the bankâ€™s credit for that of its client, ensuring correct and timely payment.
A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and canâ€™t pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.
Businesses couldnâ€™t considerably benefit from bank guarantees in Azerbaijan because of this segment remains undeveloped.