A bank reference is a document issued by your bank confirming that you have an account with them. This reference is provided by the bank only upon request or with the explicit authorization of the account holder. Depending on the nature of the request the bank may also indicate the account holder’s financial capability or suitability for a certain transaction or undertaking.
Account details are generally not offered by the bank. What is commonly done is the third party requesting the bank reference from the account holder, will submit their figures which will show the intended financial exposure. The bank will then provide some basic information and an elaborately worded opinion on the capability of the client to take on the financial requirements of the third party.
Since the bank has to protect the account holder, the information is on the whole and not that specific which needs proper evaluation.
First of all, the account holder has to make a formal request. They may then get the bank reference directly from their bank. Another option is they may accomplish a letter of authorization which gives the bank permission to supply a third party with the bank reference and other pertinent information.
Under the second option, it can be brought by the third party directly to the bank or attached to a request to their own bank in order to course the request through them.
In the option above, it may be best to course it through the bank since it is a common request and they have already set conduits and procedures to accommodate bank to bank requests smoothly.
This is a standard and often required document so the format is not hard to come by.
The format is pretty much straightforward and there are various templates available on popular word processing software which fits the bill. Do not use the templates being sold online as there is no need to use them.
In fact, given the common nature of the request, the client’s bank or the requesting party’s bank may already have forms for this request or may require additional information. It is advisable to check on the specific requirements of the bank concerned.
Generally, only the account holder is authorized to request this. The account holder can then allow third parties to make their enquiries along with a letter of authorization. This, of course, will vary depending on the specific policies the individual banks may have regarding this transaction.
In some cases, the bank client may have accomplished a legal document allowing another person to transact matters such as bank reference requests on their behalf. Again this is subject to the nature of the document executed and the requirements of the client’s bank.
Bank references are generally conducted by third parties that are about to engage in some degree of financial exposure with the account holder. Such third parties could be landlords, house sellers, vehicles sellers or potential business partners. Essentially, these third parties that request your bank reference will be extending some sort of financing or monetary assistance to you. They will then utilize this in their evaluation of the credit risks that are involved in their transaction with you.
One of the most common uses of the bank reference is for landlords. The usual procedure is the landlord makes a request either directly to the bank of the prospective tenant or through the bank of the landlord himself. Generally there are fees involved which are usually charged to the account of the landlord.
The usually required documents are authorization from the account holder for the bank to release the information requested, the name of the prospective rental property and the current address and account number of the prospective tenant, the amount of rent involved as well as the payment period and possible contract length, and the name and address of the landlord.
Banks are quite guarded in the content of the references they supply. Hence, the wording is quite careful and elaborate; which requires careful reading to be able to discern the actual evaluation.
On the one hand, banks need to be supportive of their clients. On the other hand, they cannot make a misrepresentation that may put the bank at risk. Generally, a true picture of the financial status of the account holder is provided. The bank usually opts to use very kind and words and those which are not derogatory or conclusive to preserve the integrity of their clients.
Recognizing this, most third party credit providers and other interested parties rely solely on the presence of the bank account. This of course bars any direct statements by the bank that the client may indeed be a credit risk.
As mentioned above, there is a lot of careful wording involved and one must learn to read between the lines. The lines are not exact but will usually be along the lines of the examples shown here.
If the bank says “our evaluation suggests that our client will prove good for your figures”, they are saying that you may be a good credit risk. In other words this is a passing grade in so far as the bank is concerned.
If the bank says “based on our evaluation the working capital of the client appears to fully utilized,” they are saying that their client has basically maximized use of their funds and probably cannot pay. This raises a big red flag for the creditor.
If the bank says “the figures on the document of request submitted to us contains figures higher than expected”, this says that the client is requesting more funds than they can realistically cover. Proceed only in the presence of additional collateral.
Use the box below to put your question to a solicitor or barrister. You will usually have an answer back within minutes.