Banks asked not to delay LC payments given improved forex position
In a circular issued today, the central bank said delays in making import payments by banks are unacceptable against clean bills and accepted bills
The Bangladesh Bank has asked banks to make letters of credit (LC) payments on time since they currently have sufficient dollar holdings.
In a circular issued today, the central bank said delays in making import payments by banks are unacceptable against clean bills and accepted bills.
The circular emphasised that such delays damage correspondent relationships with counterparts and increase import costs.
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It also mentioned that many banks are currently holding long positions in foreign currencies, yet despite having dollars available, some banks are still delaying foreign payments.
A bank's Foreign Exchange Net Open Position (NOP) is the difference between its foreign currency assets and liabilities at a specific point in time.
A long NOP occurs when assets exceed liabilities, while a short NOP occurs when liabilities surpass assets.
In the three months following the interim government's takeover, the banking sector received $7.03 billion in remittances through October, as there was less pressure to open import LCs and banks had sufficient dollar reserves.
Bankers say banks are using the extra dollars to settle overdue payments on government import LCs, which will have a positive impact on the overall banking sector.
The circular further mentions that, despite these developments, market information and various reports indicate that some authorised dealers are delaying or defaulting on making timely payments.
This results in reputational loss for Bangladesh, leading to higher import costs, including confirmation charges, trade credit, and other related expenses.
The circular emphasises that the settlement procedure must be followed in respect of import transactions, including permissible inland deliveries in foreign currency.
Delay in import payment to result in LC restriction: Governor
Bangladesh Bank Governor Ahsan H Mansur said no bank should hold dollars or engage in market manipulation.
"If a bank is late in making an import payment, the central bank may restrict the opening of the bank's import LCs," he warned.
Husne Ara Shikha, spokesperson for the central bank, told journalists that this directive was communicated during a meeting with the managing directors of several banks on Monday.
The managing directors of 17 banks, including Sonali, Rupali, Agrani, Janata, BRAC, City, Dhaka, Dutch-Bangla, Eastern, and Pubali, participated in the meeting, she added.
