When a Bank Guarantee Comes From a Non-Top Bank: What Has to Happen for It to Work?

In trade finance and bank instrument monetization, one of the most common misunderstandings is the belief that if a bank is willing to issue a Bank Guarantee, Standby Letter of Credit, or similar instrument, then the transaction should automatically be accepted by a monetizer.

That is not how the market works today.

The issuing bank matters. The jurisdiction matters. The wording matters. The delivery method matters. The receiving bank matters. Most importantly, the risk appetite of the monetizer and their bank matters.

A recent example involved a proposed Bank Guarantee from the Bank of South Sudan, the central bank of South Sudan. The proposed structure included a pre-advice by MT799, followed by MT760, with the instrument to be issued in favor of our Monetizer.

One important point raised in the transaction was RMA. The monetizer’s receiving bank would need to agree to establish a direct RMA relationship with the issuing bank, and we said this was not a problem. That point is important, but it is not the whole transaction.

RMA Is Not the Same as Acceptance

RMA, or Relationship Management Application, allows banks to control which institutions can send certain authenticated SWIFT messages to them. In simple terms, it is part of the bank-to-bank communication permission system. But RMA alone does not mean the receiving bank accepts the credit risk of the issuing bank.

A bank may be willing to communicate with another bank through SWIFT, but that does not mean it will rely on that bank’s guarantee as acceptable collateral. This is where many proposed instrument transactions fail. The parties focus on whether the issuing bank can send the MT799 or MT760, when the better question is whether the receiving bank and monetizer will accept the instrument once it arrives.

Communication is not the same as credit acceptance.

Why RMA Was Not Enough in This Example

In this situation, the concern was not only whether the Bank of South Sudan could send a SWIFT message. The issue was whether the receiving bank and monetizer were prepared to rely on the credit risk behind that instrument. That distinction becomes even more important when the issuing bank is tied to a stressed sovereign and banking environment. Public economic reporting around South Sudan has pointed to serious pressure, including high inflation, disruption in oil production, currency weakness, fiscal stress, and liquidity concerns in the financial system.

Those conditions do not automatically make every instrument impossible. But they do change how a receiving bank looks at an unconfirmed Bank Instrument.

A broker may ask, “Why won’t the monetizer just do it if RMA can be established?”

The answer is simple: because RMA does not transfer credit responsibility. It only helps establish the bank-to-bank communication channel. If the receiving bank and monetizer are being asked to rely only on the original issuing bank, then they are also being asked to accept the credit, country, currency, liquidity, and compliance risks attached to that issuing bank. That is a very different decision from simply allowing a SWIFT message to be received.

RMA may open the communication channel, but it does not make the issuing bank acceptable collateral.

This is why a confirming bank can become necessary. A recognized top bank confirming the instrument is not just helping with communication. It is adding its own credit strength and taking responsibility in a way the receiving side may be able to accept.

Why a Top Bank May Need to Stand Behind the Instrument

If the issuing bank is not considered a top-tier international bank, the transaction may still be possible, but it usually needs a stronger structure.

One practical way to improve the transaction is for a recognized top bank to confirm the instrument. This is different from acting only as a correspondent bank. Another way is for another bank holding the clients assets, as in gold or USD pallets, can help as collateral as well.

A correspondent bank may help with routing, communication, or banking relationships, but a confirming bank is adding its own credit strength behind the instrument, that difference matters.

If a top bank is willing to confirm the Bank Instrument, the monetizer is no longer relying only on the original issuing bank. The monetizer is also looking at the confirming bank’s standing, balance sheet, jurisdiction, compliance comfort, and ability to perform. In many cases, that is what changes the conversation.

Why the LTV Can Change

Loan-to-value is not only about the face value of the instrument. It is about risk. If the instrument is issued or confirmed by a top bank, the LTV can be significantly higher because the market views the credit support as stronger. In general market discussions, a leased instrument confirmed by a top bank may be viewed in a stronger range than an unconfirmed instrument from a lesser-known or higher-risk institution. If the instrument is owned, fully supported, properly worded, and confirmed by a top bank, the structure may support an even stronger advance.

On the other hand, if the instrument is coming only from a non-top bank, without acceptable confirmation, the LTV can drop sharply.

In some cases, market appetite may fall into a much lower range, depending on the issuing bank, jurisdiction, wording, cash backing, beneficiary structure, compliance review, and whether the receiving bank is comfortable taking the instrument at all. This is why two instruments with the same face value can produce completely different monetization outcomes.

The Issuing Bank Must Meet Today’s Standards

If a bank is willing to issue an instrument, that is only the starting point. The bank must also be able to meet the practical expectations of the receiving side. which can include:

• Direct bank-to-bank communication;
• Acceptable SWIFT delivery;
• Clean and verifiable wording;
• Clear beneficiary details;
• Evidence of authority to issue;
• Proof that the instrument is properly cash backed, if that is being represented;
• Compliance comfort with the applicant, beneficiary, source of funds, and underlying transaction;
• A receiving bank willing to establish or use the necessary RMA;
• A confirming bank, when the issuing bank is not strong enough on its own.

The strongest transactions are not built on big numbers alone. They are built on clean banking structure.

The Main Lesson

A Bank Instrument from a non-top bank may still have a path, but it usually needs help. If the issuing bank is not widely accepted by monetizers or receiving banks, then the client should ask a more practical question:

Can the issuing bank bring in, or work through, a top bank that is willing to confirm the instrument?

If the answer is yes, the transaction may become more bankable.

If the answer is no, then the transaction may still be reviewed, but the LTV will likely be lower, the compliance review will be stricter, and many monetizers may decline it altogether.

In today’s market, the question is not only, “Can the bank send the instrument?” The better question is:

Will the receiving bank and monetizer accept the risk behind it?