LAHORE: Commercial banks are refusing to issue letters of credit for edible oil imports despite the sector being exempted from the requirement of prior permission from the central bank, JEE News reported on Friday.
Edible oil importers and ghee manufacturers have been unofficially informed that their letters of credit cannot be opened at the interbank exchange rate. However, commercial banks were more than willing to do business with these importers if they were willing to open letters of credit at an exchange rate of 250 rupees to one dollar and above.
In a letter written to the Governor of State Bank of Pakistan (SBP), Sheikh Abdul Razzaq, Chairman of Pakistan Vegetable Manufacturers Association (PVMA) said that commercial banks are informing importers and manufacturers of edible oil. That instant edible oil oil has been excluded from the list of ‘Essential Commodities’ and therefore the applications for opening of L/Cs/retirement of documents have been rejected.
He further stated that it was imperative to open the letter of credit/retirement of documents without any hindrance. It should be preferred as earlier given by SBP vide EPD circular letter no. 20 of 2022 dated 27th December 2022 in order to avoid any crisis in the country, which may lead to increase in price of cooking oil/ghee and shortage due to non-availability of raw material (edible oil).
Pakistan imports 90 percent of its edible oil requirement to meet the national requirement of over 4.5 million metric tons annually. Current domestic reserves are sufficient to meet only three to four weeks of demand. However, disruption in opening letters of credit may disrupt smooth supply lines and result in market disruptions.
The PVMA chairman requested the State Bank to urgently address the issue and put aside possible panic in the market, which could translate into price hikes, hoarding or cheap imports as a result. Shortages may occur.
He said that the industry is facing a unique and unprecedented challenge in which despite having sufficient stock in the customs bonded warehouses in Karachi, it is unable to lift them due to banks’ refusal to retire the documents.
Razak urged the State Bank to direct ‘commercial banks’ to accept applications for letters of credit from importers of edible oil and to create more awareness among the general public through a media campaign.
