Banks adopt strict measures to issue new letters of credit

Hossam Mounir
3 Min Read
The State Council’s administrative court has issued a 'stay of execution of law' judgement regarding the maximum wage for employees of the banks Banque du Caire, the National Bank of Egypt (NBE), and the United Bank. (AlBorsa Photo)

A number of banks operating in the domestic market have begun adopting strict measures to issue letters of credit for foreign-trade operations, to counter any failures to fulfil these requests in case they were not able to obtain dollars from the Central Bank of Egypt (CBE).

The CBE adopted new regulations on Thursday for banks operating in the domestic market to obtain dollars during the CBE’s FX Auctions held three times a week – on Sundays, Tuesdays and Thursdays.

According to the CBE’s regulations, the banks’ acquisition of dollars depends on their efficiency in providing foreign currency to the market.

The CBE evaluates the banks’ cooperation in providing the foreign currency through three factors. The first factor is related to the bank’s credit facilitations offered for the clients to meet their foreign exchange requirements.

The second factor is the number of clients whose foreign exchange is covered by the bank, especially small clients. The third factor is related to the extent of the banks’ flexibility in meeting their clients’ foreign exchange requirements by opening currency centres within the authorised limits.

According to the head of the treasury sector in one of the foreign banks operating in the domestic market, banks do not know whether they will obtain dollars through the periodic CBE auctions or not.

He added that the banks began to reconsider importers’ requests to issue letters of credit for new foreign-trade operations.

The source, who spoke on condition of anonymity, said when CBE refuses to meet the banks’ requests for dollars through its regular auctions, the banks’ clients are therefore prohibited from obtaining dollars to finance their operations. In this way, the CBE does not punish the defaulting banks, rather it punishes their clients.

“The banks that will obtain dollars from the CBE can allocate a part for importing non-essential commodities, while other clients would be prohibited due to their banks’ failure in meeting the CBE’s regulations. However, these clients still need dollars to import essential commodities,” according to the source.

He added that this policy contradicts with the CBE’s aims, mostly to cover the largest number of clients who import essential commodities, and to eliminate the foreign currency black market.

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