Banks in Korea are considering their participation in the Asian Development Bank's (ADB's) Trade Finance Facilitation Programme (TFFP).

According to Korea's ministry of finance and economy, around 19 banks will listen to presentations by the ADB this week at the Bankers' Club in Seoul to encourage local lenders to participate in the programme.

L/C accessibility

The TFFP is designed to radically improve access for Asian traders to trade credit facilities. This group currently finds it difficult to obtain credit because local banks have proved reluctant to provide international trade finance.

Under the TFFP, trade finance is made more accessible because the ADB will guarantee up to 80 per cent of the risk of trade finance instruments such as letters of credit (L/Cs), standby L/Cs, and bankers' acceptances.

Guarantees

TFFP provides short-term guarantees to international and regional confirming banks to cover both the political and commercial risks of trade credit transactions associated with local banks operating in ADB-defined areas.

The programme is also designed to encourage trade between countries in the region. (DC World News, 14 January 2004).

Reluctant banks

Ministry officials in Korea are confident that local lenders will want to participate in the programme.

"Local banks are reluctant to handle L/Cs issued by banks of underdeveloped countries," one ministry official said. "The ADB's finance programme will help expand local lenders' trade finance ... [because] it will significantly reduce the financial risk," he added.

Recruitment drive

The ADB has so far recruited at least five banks from countries including Vietnam and Sri Lanka to participate in the TFFP.

The TFFP is based on the European Bank for Reconstruction and Development's highly successful Trade Facilitation Programme, which operates a similar scheme in countries in the former Soviet bloc.

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