LC openings, settlements both cross $6b mark in March
Capital machinery imports, however, fall by 26% in July-March
Highlights
- LC settlements stand over $6b mark for three months
- March LC openings rise by over 6%
- LC settlements in March jumps by 15%
- Rising remittance inflow, exports boost dollar flow
- Increase in dollar availability sends positive vibe
The opening and settlement of import letters of credit (LCs) in March of the current fiscal year both surpassed the $6 billion mark, showing an increase compared to the same month of the previous year.
Experts have attributed the increase in opening and settlement of import LCs to rising dollar inflow in the banking sector from higher remittances and exports.
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Central bank data indicates that in March, import LCs worth $6.46 billion were opened. This represents an increase of approximately 6.25% compared to the $6.08 billion in import LCs opened in March of FY24. In each of the first three months of the new fiscal year, the opening of import LCs has exceeded $6 billion.
When asked why the opening of import LCs increased in March, a policy official at the central bank explained that in the current fiscal year, "Banks have a larger amount of US dollars available following significant increase in remittance inflow and exports. This is why they are able to increase the opening of import LCs."
Official data shows Bangladesh received $3.29 billion in remittances in March – the highest-ever monthly inflow in the country's history. From July to March of the current fiscal year, total remittance inflow reached $21.78 billion, reflecting a 27.6% increase compared to the $17.07 billion received during the same period last fiscal year.
During the first nine months of the fiscal year 2024-25 (July-March), Bangladesh's export sector demonstrated a commendable performance, achieving a total export earnings of $37.19 billion, which reflects a 10.63% growth compared to $33.61 billion recorded during the same period of the previous fiscal year.
Mohammad Ali, managing director and CEO of Pubali Bank, told TBS, "Our country has a large consumer base, and their demand hasn't decreased significantly. Consequently, we've had to continue importing essential goods."
Commenting on the increased consumer demand surrounding the two Eid festivals and Pahela Baishakh (Bangla New Year), the experienced banker said, "We are currently in a festive season. One Eid and Pahela Baishakh have passed, and another Eid is approaching. The import LCs for a significant portion of the necessary goods during those times need to be opened at least a few months in advance."
According to the official data, back-to-back LC openings increased by approximately 13.41% during the July-March period. In the past nine months, back-to-back LCs worth $8.44 billion were opened. In comparison, $7.44 billion worth of back-to-back LCs were opened during the same period in the previous fiscal year.
Mohammad Ali said, "The availability of US dollars in banks is emboldening them to open free-limit LCs. Furthermore, the increase in our exports has led to a rise in back-to-back LC openings. These factors are contributing to a 6-7% growth in our import LC openings."
Analysis of the central bank data shows that import LC openings during the July-March period of the current fiscal year increased by 4.79% compared to the same period in the previous fiscal year. This growth was driven by increased imports of consumer goods, industrial raw materials, and other items.
Capital machinery imports drop
Despite the increase in LC openings, capital machinery imports during the July-March period decreased by 26% compared to the previous fiscal year. Simultaneously, imports of intermediate goods and petroleum also declined.
Commenting that businesses are not currently engaging in new investments, Mohammad Ali said, "Capital machinery imports are still very low. So far, I haven't encountered many clients looking to open LCs for capital machinery imports."
Highlighting that the decline in capital machinery imports is not positive for the economy, a deputy managing director of a private bank commented, "Capital machinery imports have been decreasing for quite some time. This consistent decline implies that industries are not currently focused on increasing production.
"Consequently, this trend is impacting the creation of new employment opportunities. If such a situation persists for an extended period, it could lead to some stagnation in the economy."
LC settlements rise 15% in March
According to central bank data, $6.35 billion in import LCs were settled last March, up from approximately $5.53 billion in the same month of the previous year, marking a 14.83% year-on-year rise.
Considering the fiscal year, import LC settlements have increased. In the first nine months of FY25, $52.34 billion in import LCs were paid, while the figure was $49.72 billion in the same period in the last fiscal year.
Selim RF Hussain, managing director and CEO of BRAC Bank, said the healthy growth in remittances and exports has significantly improved the inflow of US dollars into banks compared to the past. "Additionally, following the central bank's directives, many banks are now focusing on clearing overdue payments, particularly state-owned banks. These factors have contributed to the higher volume of LC payments."
This seasoned banker commented that if the growth in dollar inflow can be sustained, it will continue to help stabilise the country's forex market and build up reserves in the coming days.
A managing director of a private bank commented that the reduced volume of deferred LCs in the banking sector has eased the payment pressure on private banks. "We are now opening LCs with scheduled payments. Consequently, the pressure of deferred payments on us has decreased."
