Following the refusal of other players, Saudi Arabia’s Al-Rajhi Bank is nowthe only foreign bank currently confirming letters of credit (LCs) forPakistani crude oil imports.
Foreign banks have been unwilling to confirm letters of credit for crudeoil imports for several months due to Pakistan’s looming dollar crisis.Other banks, with the exception of Al-Rajhi Bank, declined to assume theliability, reported The News.
The issue of foreign banks refusing to confirm letters of credit firstarose in May of last year when some banks refused to confirm LCs for oilimports. With the escalation of the dollar crisis, the country is now leftwith only one bank responsible for confirming letters of credit for crudeimports. This issue was raised with the governor of the State Bank ofPakistan (SBP) when the oil sector delegation informed him of the sector’sproblems.
The SBP chief was informed that crude oil import is critical to ensuringthe country’s energy security and that if obstacles arise, the country willbe forced to import petroleum products. Importing petroleum products, onthe other hand, would be more expensive for the country in terms ofdraining more dollars.
The central bank governor said he would talk to the domestic banks toenhance the credit limits of the oil sector. However, he noted that bankscannot go beyond a certain limit in extending LCs.
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The oil sector’s credit limits have shrunk dramatically in the last year asthe dollar rate has risen to Rs. 280 from Rs. 178 a year ago, according tothe governor. Now the capital requirements for the oil sector cannot be meton the basis of existing credit limits.
The SBP governor was informed of cash flow issues in the oil sector due tothe non-recovery of exchange rate adjustments following quarterly petroleumprice reviews.
The oil sector stakeholders requested that the central bank chief allow LCsand their settlements from different banks, as there had previously been norestrictions on opening LCs from one bank and their settlements fromanother.
