The State Bank of Pakistan (SBP) on Friday signed an agreement with Bank Markazi Jomhouri Islami Iran (BMJII) to provide a trade settlement mechanism between Pakistan and Iran, marking a step towards formal banking channels between the two countries.The agreement ‘Banking and Payment Arrangement (BPA)’ was signed by SBP Deputy Governor Riaz Riazuddin and BMJII Vice Governor Ghulamali Kamyab on behalf of their respective central banks of the two countries, the release said.This development comes after the Iranian president and Pakistan’s prime minister agreed to boost trade volume to $5 billion.The objective of this BPA is to promote trade between Pakistan and Iran. This mechanism will be used for the payment of trade conducted via letters of credit (L/Cs) and in accordance with international laws and regulations.In the next step, both central banks will invite banks in their respective jurisdiction to act as Authorised Banks for undertaking trade transactions under this BPA. The details of the mechanism will be issued by the SBP in due course. The SBP expects that this agreement will help in strengthening the trade links between the two countries, it added.Previously, Lahore Chamber of Commerce and Industry (LCCI) members stressed on improving trade ties between the two neighbouring countries.Published in The Express Tribune, April 15, 2017.Like Business on Facebook , follow @TribuneBiz on Twitter to stay informed and join in the conversation.