Nepalese banks are issuing fewer import letters of credit (L/Cs) as the strengthening US dollar prompts importers to scale down their purchasing plans.

The Nepalese rupee has depreciated 25% against the US dollar over the last four months, making importers cautious enough to either reduce or postpone orders.

Trade reduction

Importers have reduced order sizes by between 15-20 per cent, the former president of the Nepalese Foreign Trade Association, Akhil Chapagain, told local media.

He said importers are also asking sellers to reduce quantities in existing orders and that container terminals are seeing a 25% reduction in traffic.

Fewer L/Cs

Importers in Nepal have to open L/Cs issued by commercial banks for purchases exceeding 20 million Nepalese rupees.

But according to the CEO of of Commerz and Trust Bank Nepal, Anal Raj Bhattarai, importers are reacting nervously to the US strong dollar and there has been a negative impact on LC issuance as importers appear ready to wait and see what happens to the Nepalese currency.

The banker added that most importers have asked banks for forward cover in efforts to mitigate the risk of the US dollar further strengthening.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.