Letters of credit: Retreat from open account?

Towards fewer, stronger chains?

As Stuart Nivison, head of trade and supply chain, Europe, at HSBC in London, notes, the move to open account from LC has been driven by a benign credit environment where counterparty risk was seen as minimal and could be financed cheaply. He says that the Asian financial crisis in the late 1990s could provide a pointer for the market. “After a few defaults in Indonesia, it became virtually impossible to obtain trade finance without bank intermediation and without the protection and key triggers for finance available through the likes of LC,” he recalls.