Middle East trade sees shift back to letters of credit

18 February 2013

Traders say that Middle East banks continue to charge too much for financing

The use of traditional trade finance instruments, such as letters of credit (LCs) is rising across the Middle East, according to a poll taken at a conference in Dubai.

Around two-thirds of those surveyed at Exporta’s Middle East Trade Finance conference said they saw a shift towards LCs.

The rise in LCs has been in part put down to political and social unrest seen in the region and the downgrades of certain countries, particularly in North Africa. With the perceived risk of non-payment rising, importers and exporters are turning to LCs issued by their banks to secure delivery and payment.

Yet, Middle East-based companies speaking on a panel at the conference said the use of LCs, particularly those that require an additional confirmation by another bank, often carry fees set at “exorbitant rates”.

One speaker added that the “cost of financing has to come down” in Dubai, comparing the emirate to Singapore, where he says financing is easier and cheaper to raise. To successfully compete against Singapore as a trade and finance hub, corporate finance costs need to be lowered, he said.

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