Sri Lankan banks increasingly honour LCs
Banks have managed to clear pending letters of credit (LC) after struggling to honour them for months.
“The LC situation is getting better. We have cleared all pending LCs. Now we are honouring these as we did before,” a senior banker in a mid-sized bank told the Business Times. As early as June banks saw depleting dollar reserves and denying importers’ LCs in a crisis mirroring a devastating blow to the economy.
Senior officials at the Central Bank (CB) at this time said that private banks were told to manage their foreign currency funding without drawing down on CB reserves.
However, the situation has now improved somewhat from about two months ago, a CB official agreed.
A CEO of a large bank said that now his bank is honouring overseas education payments as well. A second CEO also agreed to say the allocation to different sectors of LC payments is now happening unlike solely for essential items, medicines, and the like.
A senior banker in a smaller bank said that earlier exporters who brought in dollar proceeds were more or less coercing the banks to allocate their export proceeds to their preferred or nominated importers. This was done unofficially. This particular banker added the banks couldn’t refuse as these exporters were valuable customers. However, the CB has got wind of the situation, and had made a request to the banking institutions not to do this. “As a result, we managed to now cite this CB letter and tell the exporters that we are unable to do preferential allocations,” he said.
The second CEO also pointed out that exporters are sending in more dollars now than before. He also said this is because the grey market for exchange rates is gradually shrinking. “We are managing with the export proceeds.”
However, certain firms are not satisfied. Acknowledging that his company can now open LCs for smaller amounts – generally less than US$ 5000, he said that while the situation has improved, it is not enough.
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