Compared to two years ago, the dollar flow in the country has improved considerably. Import liabilities and foreign debt repayment pressures have also come down. However, despite the increase in dollar supply, the country’s banks are not at ease with foreign trade. Reluctance to open Letters of Credit (LC) is increasing as foreign banks reduce credit limits.
As the ‘Country Rating’ is poor and not up to international standards, the country’s banks require guarantees from banks in different countries to open Letters of Credit (LC). Most of the LC guarantees of Bangladesh are provided by Middle Eastern banks. Large banks in India and Europe-America are also guarantors of some LCs. Therefore, a credit limit is allowed for banks in Bangladesh.
Due to the dollar crisis, foreign banks have reduced their credit limits to Bangladeshi banks for two years. After August 5, this situation has become more fragile. Due to disbandment of 11 private bank boards, liquidity crisis and various negative campaigns, many foreign banks are not accepting LCs of some banks in Bangladesh. The credit limit has also been reduced for those banks that have good financial standing. Banks of the country have to charge additional commission or fee for opening LC, said the concerned.
Syed Mahbubur Rahman, Managing Director (MD) of Mutual Trust Bank said that it is difficult to open LC as foreign banks have reduced the credit limit. He said to Vanik Barta, “Compared to one-and-a-half years ago, the supply of dollars in the country’s banking sector is quite good. But because of the fragile situation of some banks in the country, bad messages are being sent to foreigners. Bangladesh’s country rating is already bad. With that, due to instability in the banking sector, foreign banks reduced the credit limit. Import demand is already low due to economic stagnation. Due to the demand that is coming, the foreign banks are reducing the credit limit, that LCO is not being opened.
Syed Mahbubur Rahman said, ‘Indian media has influence in the Middle East. And many exaggerated news about Bangladesh are being published in the Indian media. Foreigners are getting confused due to these news. Banks in some countries in the Middle East, India and Asia have reduced credit limits. Comparatively, European-American banks are providing good support.
In terms of imports as ‘Third Party Guarantee’, Bangladeshi banks have the most business with UAE-based Mashreq Bank. This influential bank in the Middle East is the LC guarantor of most of the banks in Bangladesh. Due to politics as well as instability in the banking sector, the bank has closed the credit limit of many banks in the country. Bank executives said that some other banks in the Middle East including India, Singapore, Saudi Arabia, Emirates have reduced the loan limit. Among European banks, Germany’s Commerce Bank has the most business with Bangladesh. This bank is also not taking LC of some banks of the country. However, despite the instability, Standard Chartered Bank Bangladesh is doing good business in this regard. Last year, the Bangladesh office of the multinational bank made a record profit. It is reported that the profit of the bank as LC commission and guarantor has increased this year.
A true picture of the country’s dollar flow and foreign trade situation is available in the ‘Balance of Payments’ report, known as BOP. The latest BOP report prepared by Bangladesh Bank was published yesterday. It can be seen that in the first two months (July-August) of the current fiscal year 2024-25, the pressure of the country’s foreign trade has become normal. In the first two months of the fiscal year 2023-24, the import expenditure of the country was 1 thousand 3 million dollars. In the first two months of the current financial year, this expenditure has come down to 991 million dollars. In this case, the import cost has decreased by 1.2 percent.
Despite the decrease in imports, there has been a growth of 2.25 percent in the export earnings in the first two months of the current financial year. In the first two months of FY 2023-24, export earnings were $6.98 billion, which has increased to $7.16 billion in the current fiscal year. And in the first two months of the current fiscal year, remittance or expatriate income has increased by 15.8 percent. The government’s current account returns to surplus as dollar inflows increase relative to spending. In the first two months of the last financial year, there was a deficit of $610 million in the current account, but there is a surplus of $110 million in the same period of the current fiscal year. The country’s financial account deficit has also decreased in the current financial year. In all, the BOP deficit at the end of August was $139 million. In the first two months of the last financial year, the BOP had a deficit of $169 million.
By reviewing the data of Bangladesh Bank, it can be seen that in the first two months of the current financial year, LC opening of imports has decreased by 12.96 percent. Import of capital equipment decreased the most by 43.71 percent. And in the first two months to August, LC settlement of imports fell by more than 13 percent.
When asked about this, Shahjalal Islami Bank Managing Director Mosleh Uddin Ahmed told Banik Barta, ‘The supply of dollars in the country is better than two years ago. Many banks have enough dollars. But the problem is that the number of LCs has decreased a lot. The country’s economy is very stagnant. There is no new investment. Foreign banks have also reduced the credit limit of Bangladeshi banks. LC opening commission and ad confirmation rate have also increased. This situation will not improve if the banking sector is not stable and strong.
