Remittances, imports on decline after banks reopen

Remittance inflows and import LC openings have declined over the past week due to the unrest surrounding the quota reform movement, a 5-day internet blackout, and a three-day bank closure.

According to the Bangladesh Bank, remittances from July 19-24 totalled only $78 million – an amount expatriates typically send in a single day through banking channels – resulting in total remittances of just $1.5 billion for the first 24 days of this month.

Remittances reached $2.25 billion in May and $2.54 billion in June, the second and third highest monthly totals, respectively, following the dollar's earlier appreciation.

Bankers say remittance speed has not significantly increased since banks reopened. Although the months after Eid typically see slightly lower remittances, the current flow is unusually low. July's remittances are likely to remain below $2 billion, with an increasing trend of expatriates using hundi.

Several viral videos show Middle Eastern workers being instructed not to send remittances through official channels, protesting the quota reform unrest and communication issues due to the internet blackout. Meanwhile, a video of a state minister and leaders urging expatriates to use legal channels for remittances is also circulating.

Mentioning that the exchange houses are receiving fewer remittance dollars, a deputy managing director at a private bank told The Business Standard, "To collect remittances, we pre-fund the exchange houses by ordering remittances in advance. In the last few days after the reopening of banks, several exchange houses have informed us that not many customers are coming to their counters to send remittances. As a result, they are not receiving remittances as usual."

In view of this, the remittance dollar rate increased by 10-20 basis points to Tk118.70-118.80. The rate had been up to Tk118.60 for at least a month, he added.

In addition to the decrease in remittances through formal channels, hundi transactions have surged over the last week, the banker said. Remittances from countries like the UAE and Saudi Arabia have declined, with many expatriates now using hundi instead of banking channels. This shift is fuelling money laundering, as emotional responses drive them away from banks, ultimately benefiting money launderers.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, told TBS, "Remittances have not been taking off very well in the banking sector for around a week. A lag effect is at play since banks and the internet were closed for a few days. This situation may be temporary, but to get a clear idea about it, we need to observe the market closely for some more time."

Import LC opening in a downward trend

Declining remittance inflows have reduced the supply of dollars and the demand for opening LCs by importers.

Senior bank officials say big businesses are waiting to observe the country's political situation before making new investments. In particular, capital machinery import LCs have not been opened much recently, and the demand for raw material imports in the RMG sector has decreased due to reduced export orders.

Consequently, many big importers are not opening new LCs, which may result in a lower LC opening figure at the end of the month, they added.

According to central bank data, the country's state-owned and private banks opened import LCs worth $5.17 billion in June, down from $6.83 billion in May. In FY24, a total of $68.19 billion worth of import LCs were opened, which is a 1.85% increase compared to $66.95 billion in FY23.

A policymaking official at a private bank said, "Usually, we open $7-8 million in LCs per working day. However, in the last two days of last week after the holidays, we averaged only $1-1.5 million in LCs. On Sunday, we opened about $5 million in LCs."

This seasoned banker said, "We have been getting small importers opening LCs for the past few days, mainly for products like consumer items, finished metals, hardware, and baby foods. However, there is not much demand for LC openings from big importers."

Despite low remittances, dollar liquidity in the banking sector remains good due to low demand for opening import LCs. According to a central bank report, dollar liquidity in banks was $6.1 billion at the end of June, over $1 billion more than the previous month.

Ali Reza Iftekhar, managing director at Eastern Bank, said banks' closure and the internet shutdown, which affected SWIFT usage, disrupted normal remittance, import, and export operations. Since the internet was restored, normal activities have resumed, but there was an initial rush that has since slowed down, causing some business disruption. He believes business will recover once economic activity normalises.