Import LCs opening and settlement rise by 20% in February

Higher remittance inflow and export earnings have boosted the availability of dollars in the banking sector, leading to a nearly 20% year-on-year increase in both the opening and settlement of import letters of credit (LCs) in February.

According to data from the central bank, import LCs worth $6.26 billion were opened in February, marking a 19.92% increase from $5.22 billion in the same month last year. In the first two months of this year, over $6 billion worth of LCs have been opened.

When asked about the surge in import LCs, a senior official from the central bank said, "Remittance inflow and export earnings have increased significantly compared to the previous fiscal year. As a result, banks now have a higher availability of dollars, enabling them to open more import LCs."

Central bank data states that Bangladesh received $2.53 billion in remittances in February – the fourth-highest monthly inflow in the country's history. From July to February of the current fiscal year, total remittance inflow reached $18.49 billion, reflecting a 23.8% rise from $14.94 billion in the same period last year. 

Meanwhile, export earnings grew by nearly 11% in the first eight months (July-February) of the ongoing fiscal year compared to the same period last year.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), told The Business Standard, "Year-on-year commodity imports increased in February. Additionally, imports of industrial raw materials and several other products rose compared to last year, contributing to the overall increase in LC openings."

Capital machinery imports decline

A sector-wise review of central bank data shows that from July to February of FY25, the overall import LC opening increased by 4.62% year-on-year. Consumer goods and industrial raw materials imports rose, but capital machinery imports dropped by 30%. Similarly, imports of intermediate goods and petroleum products (7%) also declined.

Commenting on the declining capital machinery imports, Syed Mahbubur said, "The continuous fall in capital machinery imports is concerning for the economy. This trend suggests that industries are not focusing on expanding production, which could negatively impact employment generation. The lack of investment in machinery indicates that industries are not scaling up their production capacity."

Import LCs settlement jumps 21%

According to Bangladesh Bank data, in February, import LC settlements stood at $5.74 billion, up 20.59% from $4.76 billion in the same month last year. For the first eight months of FY25, total LC settlements reached $46 billion, compared to $44.19 billion in the same period of the previous fiscal year.

Explaining the rise in settlements, Syed Mahbubur noted, "As per central bank directives, many banks, particularly state-owned ones, are focusing on clearing overdue payments. This naturally leads to a higher LC settlement volume."

He further pointed out that the increasing number of sight LCs – where payments are made immediately upon document presentation – is driving up the settlement figures. "Customers are less interested in deferred LCs and are opting for sight LCs instead. As a result, payments are being cleared within a month of opening LCs, pushing up the overall settlement amount."

A breakdown of sector-wise import LC payments from July to February shows that payments for industrial raw materials rose by 10.41%, while payments for petroleum and other imports also increased. 

However, LC payments for capital machinery saw the sharpest decline at 25%, followed by an 8.5% drop in payments for intermediate goods.

A managing director of a private bank observed that the decline in deferred LCs has eased the payment burden for private banks. 

"We are now carefully scheduling payments while opening LCs, which has significantly reduced deferred payment pressure on banks," he said.