A lending bank or third-party lender will assess the value of a project, such as a construction project, and if they feel the project may make a loss in the future, they will set aside an equal amount to cover the loss, and place the item under contingent liabilities on their balance sheet. Although in the case of a Bank Guarantee the lender is still fully secured, they will still assess the project on its merits and set the LTV, (Loan to Value), accordingly.
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