"Trade is moving to open account away from documentary credit," according to senior executives of Standard Chartered Bank (StanChart) in Dubai.

Increasingly, trade is being financed by the supplier of goods rather than by lines of credit extended by bankers, one executive told press at a launch of a new bank publication, "Middle East and Africa: the guide to working capital management 2007."

Supply chains

The guide describes documentary credits as the method of financing that has been traditionally used. They argue however that this will no longer be the case in many instances where supply chains have become longer and more complicated, consumer demand more volatile and there is increased rationalisation of buyer and seller databases.

The trend towards open account is apparent in the UAE, which is now the world's third largest re-export hub, and accounts for 14 per cent of total export volumes from the Middle East, says StanChart's managing director, head of transaction banking, Middle East and Pakistan, Azeem-ur-Rahim.

L/C boom

While the StanChart executives note a trend towards open account, documentary credit business in Dubai remains buoyant. Commercial Bank of Dubai (CBD) this January announced record results for the year 2006, and an impressive increase in letter of credit (L/C) business.

In CBD's 2006 results, the value of L/Cs and guarantees reached 6,793 million UAE dirham. This represented a massive 41 per cent increase over on the previous year. (DC World News, 19 January 2007)

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.