Tougher competition and tighter banking regulations are driving the cost of Asian letters of credit (L/Cs) down, but a wide range of sometimes sharply fluctuating rates reflects the patchy nature of Asia's economic recovery.

Levels of imports to the region are generally rising, but European exporters remain cautious about doing business on open account terms with Asian importers. This bodes well for financiers providing letter of credit (L/C) facilities, which remain de rigeur in substantial segments in several markets. Around one half of all Taiwanese and a massive two-thirds of Korean imports are currently financed by L/Cs.

Better business is resulting in cheaper pricing, with banks such as HSBC and Standard Chartered now aggressively seeking business in several markets by offering discounts tailored to the size of transactions and the pedigree of businesses involved.

The cheapest pricing is available from Hong Kong and Singapore, where the sheer number of banks competing for business coupled with the two markets' relatively robust economies and regulatory frameworks keeps prices low. Depending on the status of the bank, Hong Kong risks are typically priced at margins of between 50 basis points (bp) and 75bp. Despite the high number of non-performing loans, Taiwanese risk falls within a similar price range.

Margins of between 75bp and 150bp are reported for Korean risks. Wide fluctuations apparently run parallel with perceptions of the country's progress in reforming its corporate and banking sectors. Terms of up to 180 days or more may be available to top-tier local and international banks.

Terms of up to 180 days are also available for Thailand, where L/C confirmation for larger import transactions is priced at around 100bp and 125bp. Several banks are pricing at below one per cent while competition for Thai business in some areas is stoked by banks reportedly reducing rates to as much as 50bp.