Al-Rajhi Bank of Saudi Arabia is currently the only foreign bank confirming letters of credit (LCs) for purchases of Pakistani crude oil after other participants refused to do so.
Due to Pakistan’s impending currency problem, foreign banks have been reluctant to confirm letters of credit for crude oil imports for a number of months. The News reported that other banks, with the exception of Al-Rajhi Bank, declined to take on the liability.
When certain banks refused to approve LCs for oil imports in May of last year, the problem of foreign banks refusing to confirm letters of credit first came to light. The nation currently has just one bank left that is in charge of certifying letters of credit for crude imports as a result of the worsening currency problem. When the oil industry delegation told the governor of the State Bank of Pakistan (SBP) of the sector’s issues, he brought up this matter.
There is a separate budget for this. There is a separate budget for this. There is a separate budget for this. There is a separate budget for this. There is a separate budget for this……….. On the other side, importing petroleum products would cost the nation more in terms of draining more dollars.
The governor of the central bank promised to speak with local banks about raising the oil sector’s credit limitations. He did point out that banks are only permitted to prolong LCs up to a certain point.
According to the governor, the credit limitations for the oil sector have drastically decreased over the past year as the dollar currency has increased from Rs. 178 to Rs. 280. The current lending constraints do not allow for the capital requirements for the oil sector to be met.
The SBP governor was made aware of the cash flow problems in the oil industry as a result of the failure to recover exchange rate changes after quarterly assessments of petroleum prices.
While there had previously been no limits on opening LCs from one bank and their settlements from another, the stakeholders in the oil sector asked the central bank head to permit LCs and their settlements from multiple banks.
From the start of the dollar crisis, the LC may only be resolved by a bank, which the oil business considered to be a major problem. The governor of the SBP rejected this idea, arguing that changing the method would make currencies more volatile.