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China's lenders still cautious

Letters of credit are flowing more freely now in China, according to a Chinese business leader. The chief executive of China Export Finance, Karl Alomar, nevertheless cautions that lenders, still wary of counterparty risk, are more selective than they used to be. The trade financing market is getting back on its feet, Alomar said, but banks are not "discounting L/Cs as though there's no tomorrow ... they are still being very cautious" and are being "very specific" about the terms and structure of the trade financing they offer.

While Chinese banks appear to have developed more of an appetite for trade finance, smaller Chinese firms still struggle to find banks prepared to discount their L/Cs. Many Western banks doing business in China do not have as much capital as their Chinese counterparts and that there is still nowhere near the same availability of L/Cs that there was in the market before September 2008.

Nigerian business finding L/Cs hard to obtain

Nigerian businesses are reporting that it has become tougher for them to obtain L/Cs as the country's banks adopt a more cautious lending approach. Now it seems that both businesses and consumers are being asked to show they have either cash or other collateral before banks consider extending credit to them.

An executive at an international consumer goods firm with manufacturing operations in Nigeria said it is now much harder to obtain credit from banks and the terms offered are much less flexible. Banks are now insisting on collateral up front against L/Cs, which puts additional pressure on cash flow.

Consumers are also finding it tougher to obtain credit for big-ticket items such as motor vehicles. "Banks now require consumers to increase their equity participation to 30-35 percent from 10 per cent to access credit to buy a new car," said national sales manager for Hyundai importer Stallion Motors, Andy Ihejirika.

L/Cs and low emissions

L/Cs will be available in the US to help finance low emission projects. They will be available from a newly created autonomous body operating under the US Energy Department. The Clean Energy Deployment Administration (CEDA) will provide a suite of financing options, including L/Cs, direct loans, loan guarantees and insurance products. The "clean energy" bank will fund projects for energy production, transmission, storage and other areas that could reduce greenhouse gases, diversify energy supplies and save energy. Working in tandem with other initiatives, CEDA is likely to participate in major US plans to develop renewable technologies and establish new nuclear plants. Major reforms to the Department of Energy's loan guarantee program for low-emission projects will also be available.

Federal Reserve survey: trade finance tight

An April survey by the US Federal Reserve revealed that most banks have tightened the conditions under which they will provide international trade finance, including letters of credit. The Loan Officer Opinion Survey on Bank Lending Practices for April covers the supply of, and demand for, loans to businesses and households over the previous three months. Questions about international trade finance in the survey were asked of both US and foreign banks. The banks surveyed typically provided trade finance services consisting of L/Cs and overdraft facilities.

About 60 per cent of US banks and nearly 45 per cent of the foreign banks that provided international trade finance reported tightening standards or terms over the previous six months. Over 80 per cent of domestic banks that reported having tightened standards or terms cited a range of reasons for their outlook. These included a less favourable or more uncertain economic outlook abroad, increased concern about foreign country risk, worsening industry-specific problems, reduced tolerance for risk and a less favourable or more uncertain economic outlook in the US. About 70 per cent of domestic banks and about 10 per cent of foreign banks said they had experienced weaker demand for trade credit than over the previous six months.