ADB join hands with eight banks for credit guarantee

KATHMANDU, Aug 12: The Asian Development Bank (ADB) has agreed to provide 100 percent risk cover to international financial institutions that accept instruments like Letter of Credit (LC) issued by selected banks in Nepal.
Agreements to this regard were signed between Barry Hitchcock, ADB´s country director for Nepal, and high ranking officials of Bank of Kathmandu, Everest Bank, Himalayan Bank, Kumari Bank, Nabil Bank, Nepal SBI Bank, Nepal Industrial and Commercial Bank, and Nepal Investment Bank in Kathmandu on Tuesday. This is the first time such agreements were signed between the ADB and Nepali banks. These agreements are a part of ADB´s $1billion Trade Finance Facilitation Program.
Under these agreements, the ADB will compensate international banks if selected Nepali banks default on payments of trading instruments like Letter of Credit (LC).
LC is a promise made by a bank, on behalf of the importer, to pay the exporter a specified sum for the goods delivered. While issuing these instruments, Nepali banks have to tie up with a foreign financial institution from where the buyer imports goods. However, amidst the financial crisis which has triggered capital shortage, this process has become arduous as many international banks are hesitating to accept LCs issued by banks from emerging markets like Nepal.
The ADB´s credit guarantee is expected to help international banks to strike deals with banks here without even knowing much about these financial institutions or the country, Steve Beck, head of ADB´s Trade Finance Facilitation Program, said.
"This will ultimately improve credit rating of the country," Sashin Joshi, president of Nepal Bankers´ Association, told myrepublica.com.
On top of that, such guarantee will also deepen relationships of Nepali banks with financial institutions abroad, thereby enhancing their partnerships, Hitchcock said. "Eventually, these measures aimed at facilitating trade will revitalize Nepal´s economy and ultimately reduce poverty in the country." - REPUBLICA