Bank guarantee in Nigeria – in our previous topics we treated Letter of credit in Nigeria also know as (LC).

We made a concern effort to bring it to a layman’s understanding because our aim is to equip the layman not just to understand it but to make use of it when necessary.

This does not really come by itself. It comes by having the right knowledge and today, we are please to serve in our juicy dropbox the above topic that reads – Bank guarantee in Nigeria; Insight on Advance payment guarantee Nigeria,

Bank guarantee in Nigeria

Below are our subtopics:

  1. What does bank guarantee mean?
  2. Types of bank guarantee in Nigeria
  3. Cost of bank guarantee in Nigeria
  4. Bank guarantee process flow
  5. What are the advantages of bank guarantee?
  6. Disadvantages of bank guarantee
  7. Conclusion.

What does bank guarantee mean?

Bank guarantee is an instrument (approved bank document)  issued by the Bank in favor of its customer to his, her or their client guaranteeing his, her or their integrity especially on the usage and application of a said contract sum on a project in which the bank will be held liable should the said customer defaults.

Please find below another shot on what is the meaning of bank guarantee?

According to Central bank of Nigeria CBN this too, it is an irrevocable undertaking of a bank that the liabilities of a debtor (e.g. the bank’s customer) would be met.

This makes the bank the primary and the principal manager of the contract fund disbursement from the inception till the project finished.

This is to make sure that accountability is guaranteed. This is also called Bank guarantee letter.

Types of bank guarantee in Nigeria

The following types of Bank guarantee are in Existence:

Direct Bank Guarantee:

This is a Ban Guarantee that is given directly from a Bank to a client on behalf of its customer.

Indirect Bank Guarantee:

This a Bank guarantee issued to on behalf of customer’s deal with a certain client through another bank.

It is indirect because the issuing Bank has to issue this Bank guarantee through another bank.

Bid Guarantee or Bid Bond

This is bid document guarantee requirement in which the contract awarding firm also known as the Principal subject their interested contractors who came to bid for contract to obtain a Bid guarantee form their Bank in which the bank states that they will pay should the customer defaults

Advance Payment Guarantee (APG)

This is a Bank Guarantee not on the entire amount but on a certain advanced amount which is a percentage of the total amount.

This is usually the case contract is done phase by phase. The bank pays if the contractor defaults.

Payment Guarantee

This is a comfort letter written by a bank in favor of it customer to a client of the customer in which they confirm the integrity and capability of their customer.

They promise to pay too should such customer defaults.

Performance Guarantee

As the name sounds, this is a bank Guarantee to certify that a customer can perform.

By this the bank accepts repayment responsibility should such customer fails to repay.

This is also known as Performance Bond

Cost of bank guarantee in Nigeria

According to CBN guide, the charges for Bank Guarantee is a Negotiable subject to a maximum of 1% of the Guarantee value for the first year and 0.5% on subsequent years on contingent liabilities.

Some banks add management processing fee too.

Bank guarantee process flow

Are you bothered with how to get bank guarantee in Nigeria?

In this section we will treat Bank guarantee process and how does a bank guarantee work.

  1. Let’s say that Lagos State Government just advertised a contract and opened it up for interested contractors to tender their bid.
  2. The bid will contain terms, conditions and requirements of which Bank Guarantee will be one of them.
  3. You are expected at this point to visit your bank.
  4. A formal request will be required by your bank and all the documents required for bank guarantee will be demanded.
  5. The bank will process Bank guarantee letter which also contains terms, conditions and costs. If it is okay by the customer, he will sign it and it becomes binding and effective.
  6. The Bank Guarantee will contain a self renewal clause for immediate elongation of the BG period which is the mandatory clause in bank guarantee?
  7. This is the real hope on the question can bank guarantee be extended?
  8. A Bank Guarantee account will be opened which will be funded by the principal now Lagos State Government who is the applicant here hence the answer to the question who is applicant in bank guarantee?
  9. The customer won’t have access to this account.
  10.  Only approved money can be moved from the Bank Guarantee account to the customer’s main account. You can now see answers on how can I withdraw my bank guarantee?
  11. A bank guarantee manager will be appointed. It can be your account officer or another bank staff. The aim is for the phase by phase supervision of the project.
  12. The manager visits the site and report to the branch with proof of current status and job completion level of the work.
  13. This helps them decide if the next funding is necessary.
  14.  When the project is completed the bank will confirm same to Lagos State government who will come for inspection too.
  15.  Once the job is certified ok, the Customer of the bank will be paid and all parties go home satisfied.

What are the advantages of bank guarantee?

The following are the advantages of BG:

  1. It prevent financial loss since it a well secured and managed instrument.
  2. It offers guarantee to the concerned project
  3. It serves as a good intermediary between the principal and the bank’s customer
  4. It is negotiable.

Disadvantages of bank guarantee

The following are the disadvantage of BG:

  1. It is a long burocrasy process
  2. It is a very strict process too
  3. It waste time due to its long process
  4. The bank’s charges eats into your possible gain leading to low returns.
Bank guarantee in Nigeria
Guarantee means protection and security


Bank guarantee in Nigeria is a hope giver to project managers in Nigeria.

No matter the disadvantage, the advantage is always higher

This is the reason you must not ignore it especially when it is your last option.

 You can also read: SME in Nigeria and Letter of Credit in Nigeria

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