LC opening falls to $4b in November

The opening of letters of credit (LC) has been falling in recent months after the government and the central bank imposed several conditions on imports aiming to protect the country’s foreign exchange reserves.

In November, the amount of LCs opened stood at $4.02 billion, down from $4.74 billion a month ago, as per the latest Bangladesh Bank (BB) data.

The amount was $6.51 billion in September and $6.61 billion in August, shows BB data. The amount was $7.67 billion in November last year.

Regarding the issue, Dhaka Bank Managing Director (MD) Emranul Huq told The Business Post that banks are now cautious to open new LCs because a large number of them matured during November and December.

Most of the banks are now facing US dollar shortages due to the slow trend of remittance inflow and export earnings, he said, adding, “We have also faced pressure in settling the previous LCs.”

Huq hoped the situation would begin to improve in January.

In July this year, BB imposed a 100 per cent LC margin against the import of luxury and nonessential items.

The same month, BB also asked banks to inform it 24 hours before opening an LC worth $3 million or above as part of its austerity measures.

Pubali Bank MD and CEO (current charge) Mohammad Ali said, “It’s right that we have reduced LC opening.”

In the past, a client used to get an LC limit of $300 million but now the same client is getting a limit of $120 million, he pointed out. Despite the austerity measures to reduce imports, luxury items are still being imported, he said, adding that the government should take strict measures to stop this.

Meanwhile, LC settlement also fell in November to $5.60 billion, from $6.41 billion a month ago, as per BB data. The amount was $6.95 billion in November last year.

Economists said that the LC settlement amount is still high and that puts pressure on the country’s forex reserve.

Zahid Hussain, the former lead economist of the World Bank Dhaka office, said, “The deferred payments and rising commodity prices in the global market are the key reasons behind the high LC settlements. This will create further pressure on our foreign exchange reserves.”

The country’s gross forex reserves stood at $33.78 billion on November 30, but the usable reserves were below $26.24 billion, according to the central bank.

The gross forex reserves had reached the record highest at $48 billion in August last year.