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US pressure on Iran's central bank

At the time of this writing, several US senators were pressing for sanctions to be imposed on Bank Markazi, Iran's central bank, for helping banks already blacklisted by Washington to do L/C business. Bank Markazi would then become the fourth Iranian bank to be blacklisted by the US Treasury. Harry Reid, the Senate majority leader, and 25 other Democrats in the Senate wrote to President George W. Bush asking him to designate the bank as a "terrorist entity" or "entity of proliferation concern". The US Treasury says Bank Markazi has indirectly financed terrorism. Washington has already blacklisted Iran's three main banks - Melli, Mellat and Saderat - for allegedly handling financial services for nuclear and ballistic missile programmes or acting as a conduit for "terrorist financing". The Wall Street Journal cited US financial-intelligence officials who said Bank Markazi was handling US dollar transactions for the blacklisted banks, and is also helping them by backing their existing dollar-denominated L/Cs.

Seeking to improve India-Russia L/C business

The Federation of Indian Chambers of Commerce and Industries (FICCI) called on the Indian government to explore ways to make L/C transactions between Russia and India work effectively. The federation's call coincided with the visit to India of the Russian prime minister, Victor Zubkov, who was in the country to launch "Russia Year" in India and to open a trade and investment forum. India and Russia have said they will contemplate a Comprehensive Economic Cooperation Agreement to explore ways to realize the potential of bilateral trade and investment opportunities. The FICCI, however, has called for barriers to trade and red tape to be reduced. The federation said it made the call after surveys and discussions with Indian businesses dealing with Russia, which apparently revealed that the L/C payment system is "highly ineffectual". The FICCI suggested that the Indian government should encourage Indian banks to negotiate with Russian banks on developing a coherent L/C system so that Indian banks could discount L/Cs issued by Russian banks. This, they said, would greatly mitigate the credit risk involved in transactions or export dealings with Russia.

US mortgages and L/Cs

In the wake of the faltering US mortgage market, some lenders are suggesting that mortgage holders protect their homes by using L/Cs. One prominent US lawyer has warned homeowners to be wary of these suggestions. Some homeowners have received telephone calls from people working for the company that holds the mortgage on the family home. The "cold callers", working for lenders, have suggested owners should take out an L/C, secured by the home. This would not cost anything, these owners were told, unless the mortgage holders were to draw on the credit.

The callers claimed that this would forestall foreclosure on the home if for some reason the mortgage holder was sued and the plaintiff sought recovery by claiming against the home. Lawyers advising the owners have told them to be cautious about these cold calls, since the lender is looking for business. Lawyers have also raised questions about the reasons the callers gave for opening the credit and suggested that people mulling this option should shop around to find the best deal.

China-Nigeria L/C cooperation

As China increasingly looks to Africa as a source of commodities and natural resources, banks are forging closer ties to facilitate trade and investment between the two places. One recent tie up is between First Bank of Nigeria (FNB) and China Construction Bank (CCB), which have signed an agreement to cooperate in several areas, including letters of credit. The two banks have signed a Memorandum of Understanding (MoU) that specifies the two institutions will work together to strengthen business cooperation. Specifically, FNB and CCB will provide an appropriate, unadvised credit line to each other subject to mutually acceptable credit terms and conditions. There will also be a focus on trade finance, specifically L/C confirmation, L/C advising and forfaiting.