The central banks of Turkey and Iran have reached agreement on the amount they are prepared to make available to facilitate letter of credit (L/C) transactions in their respective currencies.

The deal was struck at a meeting of top officials from both central banks and other senior bankers in Tehran that discussed ways of developing banking relations between the two neighbouring states under their preferential trade agreement (PTA).

Agent banks

Under the new agreement, the two banks allocated a credit of 5 billion Turkish lira (US$1.32 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 traders in both countries.

Iran and Turkey appointed Bank Melli Iran and Ziraat Bank respectively as agent banks to facilitate improved L/C availability for bilateral transactions under the PTA (DC World News, 15 November 2017).

Currency foundations

The two countries also signed in October 2017 a currency swap agreement aimed at reducing costs for both countries' traders, as they will no longer need to use intermediate currencies.

This enabled the establishment of the agent banks that are allowed to finance bilateral trading via international payment tools such as L/Cs and remittances in their local currency.

Iran and Turkey now aim to reach agreement on the use of bank cards in a move that will allow their citizens to benefit from mutual electronic banking services and facilitate tourism.

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