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Banking Commission meets in Brussels

More than 340 delegates convened in Brussels at the offices of the National Bank of Belgium for the November meeting of the ICC Banking Commission. The main item on the agenda was the approval of the revised Uniform Rules for Demand Guarantees, which passed on a vote of 77-0 with one abstention (Germany). The rules, discussed in this issue of Insight, will come into force on 1 July 2010. Also approved was a motion to begin a revision of ISBP 681. The revision, likely to take at least two years, will considerably expand the documents now covered by the document. In addition, there were reports on the Incoterms revision, expected by the autumn of this year, and an update on a registry of trade finance, co-sponsored by ICC and the Asian Development Bank, intended to demonstrate the low-risk factor attached to L/C business. Hopefully, this will convince officials in Basel to change the capital requirements for L/C transactions. The next meeting of the Banking Commission will be in Beijing in the spring.

Alternative energy and L/Cs

Companies in Pakistan considering renewable power projects of up to 10 megawatts can now get discounted bank financing for L/Cs, according to the central bank. The State Bank of Pakistan (SBP) says it has introduced the initiative, which includes an option for longer-term financing, to help the country meet increased electricity demand. Under the new scheme, preferential financing will be provided through banks and development finance institutions for new imported and locally manufactured plant, machinery and equipment. The SBP says preference will be given to projects in less developed areas of the country.

Dubai contractors demand L/Cs

Contractors contemplating taking on work in Dubai are demanding L/Cs from developers before they start work. Developers in Dubai reportedly owe around £200 million to British contractors alone, and there are fears that the handful of Dubai-based developers still pressing ahead with projects will not be able to meet their bills. Dubai is currently struggling under a mountain of debt, much of which has been amassed by property developers embarked on overly ambitious construction projects. The real estate sector has collapsed, with property prices in the emirate falling by around 50 per cent over the last year. Around four out of five construction projects in the Arabian Gulf are reportedly on hold.

Saudi L/Cs decline

While many countries are seeing some signs of economic recovery, a decline in L/Cs settled and bills received by Saudi banks is indicating that confidence has yet to return to the largest Gulf state. Banks in Saudi Arabia are currently dealing with a debt crisis amongst family firms and remain cautious, thus virtually bringing credit growth in Saudi Arabia to a complete halt. Official data shows that credit growth almost came to a halt in September 2009, with bank credits at all but the same level as they were in August. The Saudi banking sector is still coming to terms with the huge problems caused by billions of dollars of debts run up by two family mega-firms - Saad Group and Ahmad Hamad Algosaibi and Brothers.

UK government launches guarantee scheme

The UK government's Export Credit Guarantee Department (ECGD) has launched its letter of credit guarantee scheme. The scheme aims to improve access to short-term export finance for UK exporters. Under the scheme, EGCD will provide guarantees to five British banks of up to 90 per cent of the value of confirmed L/Cs issued by 282 overseas banks in 36 countries. The UK banks participating in the scheme are Barclays, RBS, HSBC, Lloyds TSB and Standard Chartered. The program is scheduled to finish on 31 March 2011. The guarantee program is designed specifically to help UK businesses finance exports to emerging markets. The program will not guarantee L/Cs in markets such as the US, the EU, Australia, Canada, Iceland, Japan, New Zealand, Norway and Switzerland.