Article

Spring Banking Commission meeting cancelled

The meeting of the ICC Banking Commission, scheduled for Beijing last April, had to be cancelled at the last minute because of the volcanic eruption in Iceland that rendered aircraft unable to take off from European airports. Since several speakers in the program were unable to attend, the sponsors reluctantly agreed that it would be difficult to maintain the meeting. All items on the meeting agenda reported on in the last issue of DCInsight - the update of the ISBP, the position paper concerning on board notations, the Trade Finance Default Registry, among others - will be taken up at the next meeting of the Commission, scheduled for end September in Florida. DCInsight will report the outcome of that meeting in a future issue.

L/Cs in US mortgage scam

Letters of credit featured in a mortgage scam in the US in which at least three bank employees participated. The bankers, who were employed by Bank of America or Wachovia, are amongst seven others who could face jail terms of up to 30 years. The perpetrators of the mortgage frauds agreed to buy homes at one price from builders. They then arranged buyers at a higher price and then lied to get mortgages at the higher level, according to court documents. Prices were generally inflated by USD200,000 to USD500,000. The alleged fraudsters would subsequently share the difference between the two prices. In some cases, the fraudsters and unidentified others are accused of paying bribes of between USD4,000 and USD55,000 to the three bank employees and others for false L/Cs. The L/Cs were used to assure lenders that the borrowers would repay their mortgages.

Citibank's new products in Bahrain

Citibank in Bahrain has launched a new suite of trade finance products and services that includes letters of credit. The suite is delivered under the bank's program for small- and medium-sized enterprises (SMEs) and is known as CitiBusiness. It has been running for several years elsewhere in the world. According to Citibank, the program provides smaller firms with many of the benefits usually reserved for large corporates as well as access to the bank's multinational presence in more than 100 countries. Trade finance services on offer under the program include L/Cs, guarantees and import and export document collection.

Europe's debt and Chinese L/Cs

Europe's debt crisis could make it more difficult for Chinese exporters to obtain letters of credit (L/Cs) to finance their exports, according to a bank economist. Chief Asia economist at Credit Suisse, Dong Tao, argues that the European debt crisis has caused interbank lending rates to surge, thus making banks reluctant to issue the L/Cs on which China's trade so heavily depends. The availability of trade finance could easily become a serious problem again soon, Tao said. The economist maintains that L/C availability is closely linked to overnight lending rates between banks. So, when banks find credit hard to come by, they issue fewer L/Cs. Stemming the flow of L/Cs is an easy way for banks to conserve cash without violating the terms of other financial obligations, such as established lines of credit for big corporations.

Iran-Pakistan L/Cs

The Special Working Group of the Pakistan-Iran Joint Economic Commission has expressed concerns over delays to several measures that would help facilitate trade between the two countries. Amongst the delayed measures are proposals to provide guarantees for L/Cs for trade between Iran and Pakistan. In 2005, the Export Guarantee Fund of Iran (EGF) said it would provide cover to Pakistani exporters against the risk of non-payment of all kinds of credit, including short- medium- and long-term credits and L/Cs opened by Iranian buyers. Iran's export credit agency also said it would provide cover against the risk of non-repayment of long-, medium- and short-term credits extended by Iranian banks or exporters to Pakistani buyers.