Iranian importers are opening very large volumes of letters of credit (L/Cs) as exporters seek more business in one of the Middle East's more promising markets.

Iran's economy has been grown by more than 7 per cent in each of the last two years, and a growing number of Iranian banks are now considered good payment risks.

L/C demand

Financiers say that Iranian importers are opening very large volumes of sight and deferred import L/Cs, thus providing significant business volumes for banks in Europe and elsewhere chasing Iranian L/C business.

German exports to Iran for example grew by around 20 per cent in 2003 and according to one Hamburg-based trade financier volumes of short-term business are continuing to increase on a week-by-week basis this year.

Banking choices

Arranging trade finance is also becoming easier with a lengthening of the list of banks perceived to be good payment risks.

The list that once comprised just the state banks - Markazi, Mellat, Melli, Saderat, Sepah and Tejarat - now includes smaller public and newer private institutions such as Bank of Industry and Mines, Bank Keshavarzi, Bank Parsian, Bank Refah and Saman Bank.

Capacity worries

Overall market capacity may however be compromised by recent central bank changes. Under new regulations, payments on L/Cs with a minimum value of US$10,000 can now be deferred over 360 days.

This has apparently resulted in 180-day L/Cs being extended for a further 180 days, thus putting pressure on credit lines and sometimes resulting in increased prices.

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