Eid holidays cut April import LC openings by 7%  

Infographics: TBS

Due to the closure for Eid-ul-Fitr, the opening of letters of credit (LCs) in April fell by 7%, but import bill settlements increased by 2% compared to the previous month.

According to central bank data, the country's banks opened import LCs worth $5.68 billion in April, down from $6.13 billion in March, but higher than the $4.73 billion in February. April's figure is 20% higher compared to the same month in 2023.

Asked why LC openings decreased, senior officials at several private banks explained that the country's banks were closed for five days due to Ramadan and Eid holidays.

Additionally, ready-made and other production-related houses remain closed for 10-15 days during both Eid festivals. The need for raw materials decreases as production at these establishments is halted. Consequently, the tendency to open import LCs declines during Eid months.

However, over the last one and a half years, the central bank has implemented several measures to reduce imports, including maintaining import LC margins at 100% and discouraging the import of luxury goods.

As a result of these measures, the trade and current account balances in the country's Balance of Payments have improved. However, the financial account deficit is worsening due to increasing pressures from government and private debt repayments and trade credit.

Fitch Ratings downgraded Bangladesh's Long-Term Foreign-Currency Issuer Default Rating to 'B+' from 'BB-' on Monday, stating, "Domestic US dollar scarcity has led to effective import restrictions, as authorities manage FX allocation. Lower imports from these measures and sustained export growth drove the current account surplus to an estimated 1.4% of GDP in the fiscal year ending on 30 June 2024.

"Increased FX flexibility should alleviate US dollar shortages, potentially boosting imports in the coming years. The impact on the current account should be moderate, with remittances through formal channels expected to accelerate due to better alignment between official and parallel market exchange rates."

The deputy managing director of a leading private bank said, "Although there is no longer a dollar crisis as before, banks are scrutinising the opening of import LCs. We are now being selective in opening LCs, considering dollar management for payments at the time of LC opening."

The official said, "Nevertheless, given the country's ongoing dollar constraints and declining forex reserves, we are cautiously proceeding with LCs. However, we aim to maintain normal LC operations for essential daily commodities."

In the first 10 months of the current fiscal year, import LCs worth $56.19 billion were opened, slightly down from $56.36 billion in the corresponding period last year. Thus, year-on-year LC openings have not significantly decreased.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, said, "LCs for food imports during Ramadan were opened well in advance, alleviating the need for new LCs. Additionally, closure during Eid reduced pressure for raw material imports in export-oriented industries."

"For these reasons," the experienced banker observed, "the opening of import LCs decreased slightly in April."

According to central bank data, banks paid $5.54 billion in import LCs in April, higher than figures for February and March. LC settlements in April increased by 14% compared to the same period in the previous fiscal year.

A senior official at the central bank remarked that, due to robust growth in remittances and exports, dollar liquidity remains healthy within banks. Consequently, they are ramping up LC payments, while the pressure from deferred LC payments has also eased compared to previous levels.

"In the first 10 months of the current fiscal year, import LC settlements totalled $55.31 billion, down from $62.40 billion in the same period last fiscal year – a decrease of approximately 11% in LC settlements year-on-year."

A managing director of a private bank mentioned that payment pressures have lessened due to low LC openings over the past two years. Currently, banks are selling dollars at Tk119 to settle LCs.

Currently, banks are selling dollars at a maximum of Tk119 to settle LCs.