Iran and Turkey have appointed banks to facilitate improved letter of credit (L/C) availability for bilateral transactions under their preferential trade agreement (PTA).

The two countries also plan in December to add 60 more categories of goods that can be traded under their agreement.

Agent banks

The governors of the two countries' central banks have signed an agreement to use their national currencies to do business with each other.

The banks have allocated five-billion Turkish lira (around US$1.4 billion) and its equivalent in Iranian rial to their respective agent banks to be used as L/Cs with a repayment period of one year for both countries' traders.

Bank Melli Iran and Turkey's Ziraat Bank have been appointed agent banks to issue L/Cs and manage the allocated funds.

Cost savings

The agreement will considerably reduce transaction costs for both countries' traders so they will no longer need to use intermediate currencies.

The banks may finance bilateral transactions including L/Cs as well as remittances in their local currency.

Additional goods

The two sides have 265 categories of goods under their PTA. Iran accounts for 140 and Turkey for 125 categories in the list.

Iran is aiming to add mainly more petrochemical products to the list while Turkey has asked to add a range of goods including vehicle spare parts, electrical and mechanical equipment, aluminium products and textiles.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.