Foreign banks demand 100pc cash margin for opening oil LCs

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KARACHI: Import of oil is no more possible through local banks, while the foreign banks are not ready to open letters of credit (LCs) unless a full amount is deposited by importers, sources in the financial market told Dawn.

However, Pakistani authorities are trying to convince the oil-exporting countries to accept LCs with a 10 or 20 per cent cash margin as the demand for depositing full payment could be devastating for the country already faced with dollar shortages, bankers familiar with the developments told Dawn on Monday.

The situation was critical for the local currency which depreciated further by Rs2.14 against the US dollar interbank market on Monday. The greenback snapped over a week-long losing streak against the rupee and appreciated by 33 paise to Rs197.92 on June 3.

The opening of the market on Monday after two-day closure noted a big appreciation but the bankers were not surprised. Importers have been complaining about the difficulties they were facing in opening LCs as oil-exporting countries are not accepting LCs opened by the local banks.

Dollar crosses Rs200 amid strong demand again

“The situation is serious for the country since the oil-exporting countries are demanding LCs of foreign banks which are asking for 100pc cash margin for oil imports,” a senior banker told Dawn on the condition of anonymity.

Sources in the financial sector said that the Ministry of Finance and State Bank of Pakistan are negotiating with the oil-exporting countries to accept LCs of local banks at a reduced cash margin.

The country is in trouble as the SBP’s reserves plunged to $9.722 billion, the lowest level of the current fiscal year. The PML-N led coalition government has so far not been able to secure dollar inflows from anywhere including ‘friendly countries’ and the International Monetary Fund.

The government claims that the IMF has agreed to release the $1bn tranche as it has met the key condition of raising oil prices by a whopping Rs60 a litre in less than a week, but the bankers said the market needed dollars, not promises.

Neither the $2.3bn Chinese promise was fulfilled nor have Saudis accepted the request for financial help as the kingdom did in the past.

“The State Bank and the government could not sell treasury bills to foreign investors despite very attractive rates,” said a senior banker.

The State Bank data showed that for the first time after the two months foreign investment of about $10 million landed in the treasury bills offering very high returns.

The data of May 6 showed the inflows of $9.9 million just after the increase in the T-bill rates.

However, during the previous two months, March and April, no foreign investment was received in T-bills and Pakistan Investment Bonds (PIBs) due to a highly uncertain political situation in Pakistan.

Published in Dawn,June 7th, 2022

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