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Egypt's L/Cs and fuel imports

Egyptian importers are finding it increasingly difficult to raise letters of credit for fuel imports. According to local sources, L/Cs are either very much more expensive than they were or unobtainable. Foreign banks and traders are making credit hard to come by or charging high premiums due to concerns over Egypt's political and financial stability, according to local bankers. They say that since the election of new Islamist President Mohamed Mursi in June 2012, the number of oil traders in the market has shrunk as they struggle to secure L/Cs from banks. One trader told local media that since the new president was installed, banks have raised the costs of L/Cs supplying the state-owned Egyptian General Petroleum Corporation. There are fears that any substantial reduction in the international financial support that has so far been forthcoming since the 2011 overthrow of President Hosni Mubarak could worsen the fuel supply situation still further.

Saudi L/C surge

The value of L/Cs issued by banks in Saudi Arabia surged 24 per cent in the first six months of 2012 compared with the first half of 2011. This was the second year running in which the value of import L/Cs issued by Saudi banks has increased substantially. The total value of L/Cs issued in the first half of 2012 reached 107 billion Saudi riyal (SR107 billion - US$29 billion). This was due to record levels of Saudi import financing to meet strong demand for several items, including building materials and motor vehicles, according to data from the Saudi Arabian Monetary Agency (SAMA). Saudi businesses are obtaining record amounts of credit to finance opportunities in the government's US$514 billion infrastructure expansion programme.

UBS, India and L/Cs

The Indian operations of Switzerland's UBS banking and financial services group are to focus on letters of credit and other corporate banking services. Switzerland's largest bank is currently battling a slowdown in its main investment banking and wealth management business in India, according to its managing director and group chief executive officer. Aashish Kamat said in an interview that UBS will be diversifying into corporate banking. Under that umbrella, UBS will offer L/Cs, other trade financing services, transaction banking and cash management services to companies. Even though UBS has just one branch in India, it seems determined to maintain a foothold in the Indian market despite disappointing performance in its customary investment activities. Kamat says that in the first six months of 2012, the fee pool was only US$150 million compared with US$1 billion for a full-year basis or $500 million on a half yearly in what the banker describes as "the best of times". UBS started commercial banking operations in India in 2009, although its brokerage and advisory business began in the mid-1990s.

Iraq's Central Bank requiring L/Cs, guarantees

The Central Bank of Iraq (CBI) is drafting new payment terms under which Iraq's international traders will be required to do business on bank guarantee or letter of credit terms. According to a CBI official, the new payment terms respond to concerns over suspect transactions and foreign currency smuggling. Deputy governor of CBI, Muzher Mohammed Saleh, told local media that while Iraq is apparently paying more and more US dollars for imports, the volume of goods entering Iraq is substantially decreasing. "This means that there are some murky deals and smuggling of foreign cash," according to Saleh. The deputy governor reckons that more than US$4 billion a month exits Iraq, but the value of imports coming into the country is reckoned to be worth much less. Saleh warned that without restrictions and vetting, Iraq's foreign currency store may be substantially depleted or potentially even emptied. The central banker says he believes Iraq should insist that traders use either bank guarantees or L/Cs so that no hard currency leaves Iraq for purposes other than trade. He said the use of bank guarantees or L/Cs will make it easier for the CBI to determine whether money exiting Iraq has been used to pay for goods or not.