Thrift banks allowed to open foreign letters of credit

MANILA, Philippines - Thrift banks will now be allowed to open foreign letters of credit to cater to their clients, mostly small and medium-scale businesses currently being served only my commercial banks.

The Bangko Sentral ng Pilipinas (BSP) said it approved the proposal to allow certain thrift banks that meet the criteria to open foreign letters of credit.

According to BSP Governor Amando M. Tetangco Jr., qualified thrift banks could apply for the LC license which would be evaluated and approved by the Monetary Board.

“Most thrift banks are used to handle domestic LCs but there are thrift banks with SME clients that need foreign LCs so we’re allowing them,” Tetangco said.

Qualified for the foreign LC license are banks with capital assets of P1 billion and above. He said the MB would also be evaluating their capital adequacy ratio which must me 10 percent or above.

An import letter of credit is an instrument issued by banks to their clients who want to import supplies, materials and equipment, usually for the manufacture of goods. Under an import letter of credit, the bank effectively guarantees that the supplier of these imported items that the bank would pay them once they comply fully with the terms and conditions of the letter of credit. It is common practice for suppliers to ask for a letter of credit for added comfort and insurance before they start production or shipment of the goods on order. The LCs issued by banks also allow importers to negotiate extended credit terms.— Des Ferriols