Troubled banks unable to pay over 200 exporters, BGMEA to meet governor today for remedy

Highlights:

• Troubled banks withholding exporters' proceeds, disrupting wage payments
• Exim Bank, SIBL causing major payment delays for exporters
• Over 200 garment exporters affected, BGMEA seeking Bangladesh Bank help
• Exporters threaten press conference if payments remain unresolved
• Suppliers unpaid for months, with millions stuck in banks
• Bank mergers, panic withdrawals worsening liquidity and payment crisis

Several troubled banks are now unable to settle back-to-back LC payments and exporters' dues, even after export proceeds have been received, leaving exporters unable to pay wages and other expenses, and fuelling fears of looming labour unrest.

Exporters said Exim Bank and Social Islami Bank have caused the most problems. Exim Bank alone handles exports for 254 garment exporters, a large portion of whom have not been paid.

However, the exact amount of export proceeds stuck in these banks could not be confirmed.

According to sources at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), its leaders will meet Bangladesh Bank Governor Ahsan H Mansur today to seek a solution.

Mahmud Hasan Khan Babu, president of BGMEA, told The Business Standard, "More than 200 garment exporters are facing problems because the troubled banks are unable to make payments. Their back-to-back LC dues are not being settled, and exporters are not receiving their proceeds either."

He added, "How will factories pay workers' wages without this money? We will seek redress from the Bangladesh Bank."

Sources said a delegation of garment industry owners had already met with Deputy Governor Md Zakir Hossain Chowdhury on Sunday. The delegation included 11 exporters struggling due to non-payment of export proceeds.

An exporter in the delegation, who exports goods worth about $50 million through Exim Bank, told TBS on condition of anonymity, that there are 254 exporters who trade through Exim Bank alone, and almost all of them are in trouble.

"Even after the proceeds arrive, the bank is holding the money instead of paying us," he added. "We will meet the governor tomorrow [Tuesday] to seek a solution. If nothing is resolved, we will hold a press conference to present the issue to the nation."

Another major exporter, Hannan Group, which conducts a significant share of its business through Exim Bank, is also facing difficulties. The company's managing director, ABM Shamsuddin, said they have not received any payment for their exports.

"I submitted all the export documents," he said. "But after the proceeds came in, the bank did not pay back-to-back LC dues or our share of the money."

He alleged, "They [banks] are swallowing all the dollars. Millions of my export dollars are coming into the country, but the bank is withholding them…Where is this money going? First, they cheated customers with deposits, and now they are doing the same with export proceeds."

In export transactions, importers typically open a letter of credit (LC), called a master LC, with a recognised bank in their country, favouring the exporter. Once the goods are delivered, that bank pays the exporter's bank.

In contrast, exporters in Bangladesh often take working capital from local banks under back-to-back LCs, using the funds to purchase raw materials. 

When the export proceeds arrive, the bank deducts the back-to-back LC amount and pays the remaining balance to the exporter. The bank also pays suppliers who provided raw materials on credit through the back-to-back LC.

Currently, however, troubled banks are unable to make these payments.

One affected supplier, Saleudh Zaman Khan, managing director of NZ Textile Mills, said, "For the past nine months, I have not received payment for supplying raw materials under back-to-back LCs through Exim Bank and Islami Bank. In total, about $1 million of mine is stuck in the banks."

He added, "When I contacted the banks, they said the five troubled banks can't make payments until after the merger. We are in serious trouble."

The chairman of one troubled bank, on condition of anonymity, admitted the problem. However, he claimed, "Around 300 exporters trade through our bank but the number of exporters yet to receive payments does not exceed 40."

He added, "After it was announced that the bank would be merged, panic spread. Customers stopped depositing, and many rushed to withdraw funds. As a result, we can't make payments. The problem has become severe since last June."

Blaming the government's indecision on bank mergers, he added, "If the merger was necessary, it should have been completed within a week instead of dragging on."

SIBL Vice Chairman Maksuda Begum could not be reached for comment.