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Forfaiting Drafting Group makes progress

In February 2011, the ICC Drafting Group sent a discussion draft of its Uniform Rules for Forfaiting (URF) to members of the ICC Banking Commission and the International Forfaiting Association (IFA) for review and written comments. The draft, which was presented to the Banking Commission in its Zurich meeting, will be followed by a full second draft to IFA and ICC members in August. Forfaiting is described by the Business Dictionary as a "type of export financing (practised largely in Europe) in which a forfaitor (usually a bank or a finance company) purchases freely-negotiable instruments (such as unconditionally guaranteed letters of credit and 'to order' bills of exchange) at a discount from an exporter". Among the issues focused on by the Drafting Group are whether to include statements in the rules regarding fraud, governing law and original documents and how to address force majeure. The Drafting Group members include both internal and external lawyers, primary market forfaiters, secondary market forfaiters and operational staff from a variety of countries.This is ICC's first venture into forfaiting, part of the Banking Commission's effort to expand its work beyond guarantees and letters of credit.

Japan's disaster and L/Cs

The impact of Japan's devastating earthquake and tsunami, compounded by nuclear safety fears, is being felt by banks writing Japanese L/C business. It will be some time before the true costs of the disasters to banks are completely measurable, but banks outside Japan as well as Japanese banks will have to shoulder additional financial burdens. US banks are thought to have around USD 100 billion worth of exposure to Japan. Of these banks, JPMorgan Chase & Co. has the largest Japanese exposure, with USD 3.9 billion in "cross-border outstandings". European banks with high levels of exposure to Japan are thought to include the UK's Royal Bank of Scotland Group and Switzerland's UBS AG.

Egypt's L/C business

Reviving Egypt's letter of credit industry is one of Washington's several objectives in terms of its support for the North African country as it works to revitalize its economy in the post-Mubarak era. A measure to support Egyptian L/Cs was one of several introduced by US Secretary of State Hillary Clinton during her mid-March visit to Cairo. It was revealed during the visit that the US Export-Import Bank has approved a USD 80 million insurance package to back L/Cs issued by Egyptian financial institutions. In addition, Clinton pledged USD 90 million in emergency economic assistance for Egypt. The US is particularly eager for Egypt to mobilize schemes that will bolster Egypt's small- and medium sized enterprises (SMEs) in which 99 per cent of Egyptians work. Much of the USD 90 million of emergency assistance will support job creation schemes in SMEs.

Saudi L/C activity grows

Letter of credit business in Saudi Arabia is expected to grow in 2011 as import flows improve according to data released by the Saudi Arabian Monetary Agency (SAMA). However, analysts are warning that regional unrest could stall anticipated growth in the Saudi economy. According to figures released by SAMA, the value of new L/Cs issued against imports in January was up 1.5 per cent compared with January 2010. The value of L/Cs issued in the Kingdom varies widely during the year, but officials anticipate that more will be issued on the back of increased import flows. Imports into Saudi Arabia rose by less than 1 per cent last year but are anticipated to increase more sharply during 2011.

ICC Global Survey reveals uneven trade growth

Global trade flows rebounded across many regions in 2010, according to the International Chamber of Commerce (ICC) Trade and Finance Global Survey 2011, but high-pricing meant that traders in many low-income countries still faced difficulties accessing affordable trade finance. The Survey showed that traders in of these countries still have considerable difficulty accessing trade finance at an affordable cost, particularly for import finance. The Survey is available on the ICC bookstore website, www.iccbooks.com