Ahsan Aziz, chairman, International Chamber of Commerce Pakistan Banking Commission and Head of Operational Excellence, Pakistan, Standard Chartered Bank, has underlined the need for staff training to control the declining trend toward issuance of letters of credit (LCs).
He was delivering keynote address at the two-day workshop on "Demystifying UCP-600" organised under the auspices of the Institute of Bankers of Pakistan here on Wednesday. IBP has planned a series of workshops on the subject throughout the country.
Uniform customs and practices for documentary credit (UCP) was first introduced in 1933. It has been revised from time to time and the latest revised version, UCP-600, would be effective from July 1, 2007. Aziz noted the failure to control the declining trend toward issuance of letter of credit would have a serious implication on the market share as a mechanism of trade payments.
Annually, international trade transactions amounting to $16 trillion are carried out in the world out of which only 15 per cent is under L/C, despite the fact that L/C is a mechanism to facilitate the trade payments, he said.
The chairman observed that one of the main reasons of this declining trend is that approximately 70 percent of documents presented under L/Cs are being rejected on first presentation due to discrepancies. This obviously cast a negative impact on the usage of letter of credit as people will not view L/C as a tool and instrument for the settlement of trade, but as a means to avoid delay in payments, he added.
Aziz said the banks have further aggravated the issue by introducing the discrepancy fee specially when the underlying discrepancies have been found to be ambiguous or unsound. He said it was necessary to train the staff and the customers in UCP-600 so that credit confirmed documents could be submitted.
"We should be more customer focussed and should not misuse UCP for raising unwarranted disputes and disagreements," he advised. The chairman said that the future of L/C is in our hands. "I am 100 percent confidant that we as a team can turn around the declining trend of L/C and will make a robust mechanism for payment," he added.
He asked the participants that they should try to facilitate trade transactions, which will not only assist their customers but would also have a positive impact on the national economy. Aziz gave the background of UCP 600 revision and ICC Pakistan's contribution in the revision process and talked about the way forward.
He said that the main objective of the revision was to bring this document in line with the market developments that have taken place in the banking, transport and insurance industry. In addition, he said, there a need to simplify the language, provide clarity and use a style that is easily understandable by the users around the globe so as to remove any wording that could lead to inconsistent application and interpretation.
Earlier, in his introductory remarks Mohammed Saleem Umer, Chief Executive of the Institute of Bankers Pakistan, highlighted the role of the Institute in training and grooming human resources in banking and other financial sectors.
He said that the Institute had chalked out a comprehensive plan of training sessions to clarify the salient features of UCP 600. These sessions, he said, would be held throughout Pakistan.