Letters of credit (LCs) openings have gone up by 20.86 per cent year-on-year in November. LCs involving $5.08 billion were opened in November 2023, compared to $4.02 billion recorded in the same period last year.
Speaking to The Business Post on condition of anonymity, a senior central bank official said, “There were two key reasons behind the year-on-year increase in the LC openings. Banks are opening government LCs, especially for fertiliser and fuel.
“LCs opened for fertiliser imports have increased in the last three months.”
He added, “Farmers will cultivate Boro paddy during the January-February period of 2024, the demand for fertiliser will increase at that time. So, the government is increasing the opening of LCs for fertiliser imports.
“Another reason for an increase in the opening of LCs in October and December is imports of expensive capital machinery. The opening of LCs under the Export Credit Agency (ECA) has increased. It could be $300 million – $400 million per LC. A big amount compared to other LCs.”
An export credit agency offers trade finance and other services to facilitate domestic companies' international exports. Most countries have ECAs that provide loans, loan guarantees and insurance to help eliminate uncertainty of exporting to other countries.
Another senior official of the central bank said, “Commercial banks are facing problems due to the USD crisis. Every day, these banks want USD from the central bank. The Bangladesh Bank supports commercial banks to facilitate opening of LCs.
“That is why the central bank is selling USD to commercial banks every month. The regulator sold $4.53 billion to commercial banks in July-October of FY24.”
He further said, “The amount of LC openings increased in the last four months, because banks are opening only government LCs. However, there are many importers that cannot open sufficient LCs due to the USD crisis.
“Commercial banks are now denying opening of private LCs.”
Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “The government imported fertilisers because the farmers will need it by January during the Boro season. Farmers had faced a shortage of fertiliser last year.
“The country needs USD through the banking channel. Otherwise banks would not be able to open LCs, which would not be a good sign for the economy in the long term.”
A treasury head, preferring to be anonymous, said, “Banks are facing a USD shortage. We are being pressured by the managing director to collect more USD. We are currently opening government LCs only.”
Central bank data shows that LCs involving $5.42 billion were opened in October this year, compared to $4.74 billion year-on-year. LCs involving $5.59 billion and $5.23 billion were opened in August and September this year respectively.
Banks, especially the state-run ones, are getting USD support from the regulator for settling import payments of Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation and Bangladesh Chemical Industries Corporation, and other government agencies.
The country’s forex reserves continued to fall since August 2021 because of the central bank’s USD selling spree. Foreign reserves stood at $20.66 billion in November 1 this year under the International Monetary Fund (IMF) method.
