ADB signs trade finance deal with Nepali banks

KATHMANDU, Aug 12 - The Asian Development Bank (ADB) and eight commercial banks signed a trade financing agreement on Tuesday. The agreement is aimed at promoting international trade in Nepal and helping Nepali banks forge alliances with banks overseas.The banks that have signed the agreement with the ADB are the Bank of Kathmandu, Everest Bank, Himalayan Bank, Kumari Bank, Nabil Bank, Nepal SBI Bank, Nepal Industrial and Commercial (NIC) Bank and Nepal Investment Bank.
The agreements are part of the ADB's Trade Finance Facilitation Programme (TFFP). The programme provides guarantees and loans of up to three years to support trade transactions in its developing member countries.
The agreement with the ADB means letters of credit (LC) opened by these eight banks in international banks will be guaranteed by the ADB. It also means LCs of these banks will be easily accepted by international banks now onwards. If Nepali banks default, the ADB will pay the international banks.
"Without this guarantee, it used to be costly for Nepali banks to confirm their LC in the international market," said Sashin Joshi, chief executive officer of NIC Bank. "Now, the costs will also be reduced," he added.
"Boosting trade is critical to help Nepal overcome the current global crisis that has hurt both exports and may slow the growth in remittances this year and in 2010," said Barry Hitchcock, the ADB's country director for Nepal. "In the longer run, increased trade should also lead to crucial job creation and reduced poverty."
Under this programme, the ADB has introduced two products in Nepal, Risk Participation Agreement (RPA) and Credit Guarantee Agreement. So far, the bank has done 12 transaction in Nepal totalling US$ 6 million under the RPA. "The third product revolving credit facility will also be introduced in Nepal in the future," said Steve Beck, head of the TFFP, ADB.
This is first time that this kind of arrangement has been done by Nepali commercial banks with the ADB. The ADB has set a limit of US$ 1 million to 1.5 million for these banks under the programme. "The limit is determined through due diligence and risk analysis by the ADB's Risk Management Department," said Beck.
However, three Nepali banks have already made the same kind of agreement with the International Finance Corporation (IFC), the private sector arm of the World Bank. The banks that have joined the IFC global trade finance programme (GTFP) are NIC Bank, Himalayan Bank and the Bank of Kathmandu.
"The tie-up with the IFC has helped banks in the post-global financial crisis situation while opening LCs in the international market," said Joshi. The IFC has provided US$ 2 million to these banks under the GTFP. - Kantipur Report