Further food price volatility feared as banks cold-shoulder LC opening

Many banks are now unable to open letter of credits (LCs) for importing food essentials, said traders, triggering a fresh concern about the local market supply.     

Importers said already spiralling food and commodity prices may see further hikes after two weeks if the situation does not improve. 

Admitting the recent import disruptions, bankers said the greenback crisis has intensified over the past two-three weeks as LC opening for essentials was quite normal even in September. 

Branch managers of at least three banks in Chattogram's Khatunganj – the country's largest wholesale commodity hub – told The Business Standard that they have to turn away most of the food importers nowadays. 

They said few companies with good limits are only making it to the LC opening, albeit after multiple failed attempts to different banks.   

For example, City Commodities – a reputed consumer goods importer – approached Bangladesh Commerce Bank's Khatunganj branch for opening a $3.23 lakh LC to import chickpeas. But the importer was turned away. 

Subsequently, the importer was able to open the LC with Islami Bank Khatunganj branch after making rounds to at least three other banks for two-three weeks.   

"It's really disappointing that we could not open it despite the importer being a long time customer of ours," Mohammad Mohiuddin, manager of Commerce Bank's Khatunganj branch, told The Business Standard.

The banker said the branch even talked to its headquarters in Dhaka, but failed to mobilise the amount eventually. 

MS Enterprise – a tin can-maker for food items – is not as lucky as City Commodities. It has been making rounds for two weeks to open a $40,000 LC. The firm offered banks even 75% margin of the LC, but to no avail.

"If the situation continues, essential supply will face a crisis," Haradhan Nag, owner of Shri Matribhandar, told The Business Standard after failing to open LCs for chickpeas and lentils.   

Arfanul Islam, manager of United Commercial Bank Khatunganj branch, told The Business Standard that his bank had to turned down LC opening proposals for oilseeds and maize, including one by the president of Chattogram Chamber of Commerce & Industry.  

Importers said the delay and disruptions in LC opening has already contributed to the surge of food items. Most of the food items in Khatunganj logged Tk200-Tk300 price hikes in just one week.     

Importers at Bhomra land port in Satkhira said banks' unwillingness to open LCs for food import from India would affect the market badly after 10-15 days.  

Mostafizur Rahman Nashim, former general secretary of Bhomra Land Port C&F Agents' Association, said now they can only bring in foods from the neighbouring country against LCs opened earlier.

General Secretary of Bhomra Land Port C&F Agents' Association Maksud Khan said bankers told them the central bank had instructed banks to discourage the LC opening. "This will gradually reduce the import of goods and will definitely affect the local market."

Imports of non-essential items on the rise 

Amid the authorities' stringent measures to discourage non-essential and luxury imports, Chattogram customs data show imports of scrap ships and foreign fruits through Chattogram port have been rising gradually.      

According to Chattogram customs, 8 scrap ships were imported through the port in July. But it increased to 9 in August, 12 in September and 13 in October.   

Similarly, imports of foreign fruits such as oranges, apples, grapes and pears, through the port have been rising since July. Fruit import stood at 21,571 tonnes in July, but it increased to 33,454 tonnes in August, 34,190 tonnes in September and 42,088 tonnes in October. 

Sekandar Hossain, chairman of KR Steel, said some influential shipbreaking yards, especially those who own banks, are importing the scrap ships by leveraging the power. 

Mahbubul Alam, president of Chattogram Chamber of Commerce and Industries, the Bangladesh Bank must take adequate steps to ensure the import of daily essentials. 

If necessary, the business leader advised to completely ban the import of luxury goods now.

The Business Standard Satkhira correspondent contributed to the report.