LC margin lifted for all imports except luxury goods

The Bangladesh Bank has lifted the letter of credit (LC) margin on all types of imports, except for luxury items and domestically produced goods, with the aim of accelerating the country's industrial and trade activities.

Businesses can now import capital machinery, consumer goods, and industrial raw materials without needing to provide a cash margin based on their relationship with their banks.

In a circular issued on Thursday (5 September), the central bank stated that as the country's foreign currency exchange rate and transactions are gradually stabilising, the LC margin has been withdrawn with the aim of boosting business, industry, and trade activities.

However, a 100% margin is required for the import of goods such as motor vehicles, cosmetics, electrical and electronic items, home and office furniture, decorative items, gold and jewellery, fruits and flowers, precious metals and pearls, non-cereal foods, ready-made garments, processed foods and beverages, leather products, alcoholic beverages, jute products, tobacco, tobacco products, or their substitutes.

Md Solaiman Parsee (Faisal), director at the Bangladesh Pipe and Tube-Well Merchants Association, told The Business Standard that the central bank's decision to withdraw the LC margin is a significant step. He believes it will further expand business and trade in the country.

"Previously, we had to pay a 100% margin instead of 5% for imports. This situation left most of our business capital idle and contributed to higher prices for imported goods at the consumer level," he said.

Faisal said the government should impose a 100% LC margin on imports of domestically produced products.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association, told TBS, "I commend the central bank for lifting the LC margin. I had previously requested both the chief adviser of the interim government and the governor of Bangladesh Bank to withdraw the margin."

"There was no margin for our bank-to-bank LCs. However, a margin had recently been imposed by nine banks. It has now been removed, which is a positive development," he added.

Previously, many importers had to secure additional loans from banks to cover the LC margin, leading to higher costs due to interest on these loans. This, in turn, increased the prices of imported goods at the consumer level.

Earlier, starting in July 2022, in response to global economic instability, instructions were issued regarding the imposition of the cash margin rate for LCs, aiming to better manage the country's foreign exchange.