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Vietnam boosts L/Cs

The Vietnamese government has issued a decree, primarily to support export credits for both domestic and foreign businesses. The decree is aimed at helping enterprises and businesses based in Vietnam whose overseas trade and investments require loans or guarantees for credit, but both importers and exporters writing L/C business appear to benefit from the legislation.

Domestic and foreign businesses requiring credit or guarantees for exports may be eligible for a maximum state investment credit of 70 per cent of the total cost of an export deal. The deal would have to be approved by the Vietnam Development Bank. The interest rate on the credit would remain unchanged for the whole term and would be calculated in Vietnamese dong on interest rates 0.5 per cent higher than those applied to five-year government bonds. Businesses that fail to make payments on time will have to pay 150 per cent of the lending interest rate on overdue debts. The legislation should encourage two-way cross-border trades, because both importers and exporters appear to be eligible for up to 85 per cent of the value of some deals.

Iran changes to euro

A top Iranian government official has urged businesses in Iran to open L/Cs in euros in the future. The advice coincides with the government's announcement that Iran will shift its foreign currency reserves from dollars to euros and use the euro in oil deals in response to US-led pressure on its banking sector and economy. As expected, Tehran has now said officially it would use the euro for all future commercial transactions overseas. The move comes as Iranian businessmen are complaining about delays in securing L/Cs. Washington, which accuses Tehran of supporting terrorism and trying to obtain nuclear weapons, is seeking to limit the flow of US dollars into Iran. It wants the UN Security Council to impose sanctions on Iran and has pressured banks worldwide to stop dealing with the Islamic republic.

US: L/Cs still widely used

US businesses are shying away from L/C transactions towards open account trading, according to several sources, notably credit insurers, factors and purveyors of online L/C alternatives. But according to a survey by Bank of America (BOA) of US manufacturers, L/Cs are still widely used. The survey of chief financial officers (CFOs) found that L/Cs and cash management topped the list of most widely used products and services from lenders, with 66 per cent of CFOs saying these were the bank offerings they used most. Foreign exchange services were the next most used products and services from lenders, with some 42 per cent of CFOs saying this was the bank offering they used most. In other results of the survey, 39 per cent of the CFOs surveyed said credit availability from their current lender had increased over the past 12 months. One in four CFOs expect their borrowing needs to increase in 2007 which, according to BOA, is the lowest percentage in the nine-year history of the survey.

IFC strengthens Bangladesh ties

The International Finance Corporation (IFC) says it plans to invest at least USD 8 million in Bangladesh's banking sector through its Global Trade Finance Programme (GTFP), which centres on providing guarantees for L/Cs. According to local media reports, the IFC will invest USD 3 million in BRAC Bank and USD 5 million in the Southeast Bank. The programme, which began operations in September 2005, is aimed at supporting trade with emerging markets worldwide and promoting flows of goods and services between developing countries. In the GTFP, the IFC provides guarantees covering bank risk related to underlying trade transactions, most of which are L/C based, for up to three years. The IFC programme, started only a short time ago, is being increasingly used.