LC Issuances Drop to 32-Month Low in Bangladesh

Multiple factors have contributed to a continuing precipitous fall in the value of LCs opened and settled in Bangladesh. According numbers attributed to Bangladesh Bank, the country’s central bank, import LCs worth just USD 4.30 billion were opened in April 2023, a 49% decrease from April 2022, and the lowest level since August 2020 when import LC openings stood at USD 3.7b amid the Covid-19 pandemic.

On the import LC settlement side, volumes amounted to USD 4.69b in April 2023, the lowest figure since July 2021 when LC payments totaled USD 4.65b.

Reasons cited by Bangladesh’s The Business Standard and its sources included LC restrictions implemented by the central bank, an ongoing dollar shortage crisis, and abbreviated work days of banks in April due to the Eid-ul-Fitr holiday.

“Our export income is on the decline. Besides, despite April being the month of Eid, remittances have come in less than the same period of the previous year. As a result, there are now no dollars in the bank channel to open import LCs on demand”, explained Emranul Huq, managing director & CEO of Dhaka Bank, to The Business Standard.

Frustration is building among importers who have expressed that despite fulfilling all the conditions set by the central bank, banks are not opening import LCs to match demand for them.

The diminished opening of import LCs has wide-ranging implications for various aspects of Bangladesh’s economy, according to Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, who added that the central bank to needs to acknowledge the limitations of the measures implemented to address the dollar crisis, such as increasing the LC margin and introducing multiple exchange rates.

“These decisions have resulted in a decline in remittances and export proceeds. It is particularly concerning that the exchange rate of the dollar is not allowed to be determined by the market, as this could potentially exacerbate the crisis even further”, said Hussain as quoted in The Business Standard.