A pact to this extent was signed by NRB Deputy Governor Gopal Prasad Kafle and PBC Deputy Governor Hu Xiaolian in the presence of NRB Governor Dr Yuba Raj Khatiwada in Kathmandu. [break]
“The agreement was signed as per the NRB´s strategy of diversifying its investment portfolio,” an NRB statement issued on Friday says. “We hope this arrangement will facilitate trade payments between Nepal and China and also prove to be milestone in strengthening Nepal-China ties.”
Prior to the signing ceremony, Hu had met with Khatiwada during which talks on expansion of banking service between Nepal and China, tax relief on returns generated from investment in Chinese government securities, use of formal banking channels for trade payments, currency swap arrangement and staff exchange programs were held.
One of the issues that Nepali businesspeople have long been pursuing is promotion of cross-border banking services so that trade payments can be settled in a secure manner.
Currently, most of the payments to Chinese parties are being settled via bank draft and telegraphic transfer (TT). These modes of payment are considered highly risky as they are similar to making cash payment, which raises chances of Nepali traders being duped in case of receipt of faulty consignments.
In this regard, Nepali businessmen have long been asking NRB to push the Chinese central bank to promote the use of Letter of Credit (LC) for payments above certain limit.
This is because, under LC transaction, banks work as guarantors for amount that has to be paid by traders and payments are released upon receipt of consignments. Trading via use of LC also provides ample time to importers to mobilize funds as only small portion of the total payment has to be paid upfront, while the rest can be paid once the delivery of the consignment is made.
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