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Captive insurers turn from L/Cs to trusts

Captive insurers - insurance companies wholly owned by a company not involved in the insurance sector that provide cover for risks of the group to which it belongs - are turning away from L/Cs as a form of collateral, according to speakers at a captive insurance conference in Vermont, USA. The insurers say trusts on the other hand are becoming more commonly used as collateral for the conventional insurance companies that provide services for a captive insurer. Captives are often required to post a L/C, cash or a trust as collateral for the domestic insurance company that provides claims or administrative services to a captive insurer. But while L/Cs used to be the most common vehicle, tighter bank credit has prompted captives to turn more often to trusts for collateral. Trusts apparently operate much like savings accounts out of which money can be allocated to pay whatever obligation is expected from the fronting company that provides services to a captive insurer.

UAE firms turn to multi-bank platforms

Two associated UAE-based firms have opted for a web-based multi-bank platform that aims to streamline the management of their L/C and other trade finance functions. Emirates Trading Agency LLC and Associated Constructions LLC (ETA Ascon Group) have opted for the @GlobalTrade solution developed by Canada's GlobalTrade Corporation (GTC). By adopting @GlobalTrade (see "Electronic trade news" in this issue), the group says it will be able to access solutions to process import and export L/Cs and collections as well as guarantees. Because the solution is a multi-bank platform, ETA Ascon Group will be able to process transactions with several major banks in Dubai. The group hopes that by automating and standardizing its trade finance activities on the new software, it will be able to reduce risks and view transactions handled by several banks on one electronic page.

Tougher restrictions in Nigeria for oil marketers

The Central Bank of Nigeria (CBN) has ordered tighter restrictions on the country's commercial banks, making it more difficult for them to issue L/Cs to oil marketers. The measure is one response to a massive build up of bad debts in Nigeria's banking sector, substantially caused by oil marketers' inability to repay loans. Reports suggest that bad debts across Nigeria's banking system may have reached as much as 800 billion naira (N800 billion) or around US5$ billion. The situation is variously blamed on poor credit assessments by chief executives of more than a dozen commercial banks and ineffective regulatory controls by the CBN, the Securities and Exchange Commission and the Economic and Financial Crimes Commission. Oil marketers are also seen as significant contributors to the high level of indebtedness: the total exposure of five banks to oil and gas debts alone stands at more than N487.02 billion. Now the central bank has made it harder for oil marketers to obtain the L/Cs they need to do business by restricting loans to an amount equivalent to 10 per cent of a company's share capital.

Citigroup to support municipal L/Cs

Citigroup is going ahead with two new lending initiatives worth US$6 billion supported by US government bailout funds. An initiative to boost municipal L/Cs is the larger of the two programs announced by the banking giant. Citi will provide up to US$4 billion in municipal L/Cs in one initiative, while the other will see US$2 billion earmarked for mortgage originators. The lending initiative for municipal clients builds on a US$5billion programme Citi had already approved that provides loans to the public sector for directly funded capital projects such as new buildings and infrastructure. The L/Cs will be available to local governments, municipal agencies, health care groups and other public sector clients and will be for a tenor of up to three years. The New York-based bank says it has approved more than US$50.8 billion of lending programs supported by funds provided under the US government's Troubled Asset Relief Programme (TARP).