Improvements in external perceptions of Algerian risk have led to an increase in letter of credit (L/C) business for exports to Algeria according to French bankers.

They say that banks are not relying on guarantees on L/C deals and that competition amongst banks for Algerian business is stronger than it was.

No guarantee

In the L/C confirmation markets, a more positive view of Algerian risk has resulted in the International Finance Corporation (IFC) scrapping a guarantee arrangement made in 2002 with BNP Paribas in order to boost Algeria's import finance availability.

Algeria's private banks have not developed as the IFC had hoped, while foreign banks seem quite prepared to take on transactions with Algeria without such a guarantee.

Risk appreciation

One Paris-based banker who deals with short-term trade finance for North African countries has said that her bank's country capacity for Algeria has really increased. "There has been a country risk evolution as the economics have improved," she said.

As well as improvements in the Algerian economy, foreign banks that have subsidiaries in Algiers - BNP Paribas has been represented in Algiers for two years for example - have gained a much better appreciation of Algerian risk by having a physical presence in the country.

Competition

Trade financiers say that improved perceptions of Algerian risk have brought in strong competition from French and international banks to do L/C business in Algeria.

Pricing, however, has altered greatly as a result of this competition, except with big transactions of over one year, in which cases pricing is usually negotiated to a lower level.

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