State banks spend 80% of their forex for govt imports in H1

Infograph: TBS

With dollar support by the central bank, state-owned commercial banks spent 80% of their foreign currencies for government imports in July-December, keeping the domestic food and energy supply normal.

In the first six months of FY23, the Bangladesh Bank has sold $7.8 billion, of which $7.2 billion was supplied to the state-owned banks for importing food, fertiliser and energy, according to industry insiders.

The state banks in the July-December period cleared $10.68 billion import bills, including $8.41 billion government goods – which is 80% of the total amount.

In July-December, state-owned Sonali Bank opened letter of credits (LCs) for imports worth $2.85 billion that was 94% of the import bills by the bank. During the period, the lender settled private LCs worth only $161 million.

Similarly, government imports by Agrani, Janata and Rupali were 68%, 77.43% and 80% respectively of total imports by the banks in the first half of FY23.

According to bankers, dollar sales by the central bank to private banks remains suspended for the past couple of months in the face of a fast-depleting foreign exchange reserve. The banking regulator is providing the greenback only if the importer is the government and the foreign items seem actually necessary.

"Even though our target is profit, we are now prioritising government imports despite those usually offering a nominal gain," Mohammad Jahangir, managing director of Rupali Bank, told The Business Standard.

Government imports generally include rice, wheat, fertiliser and petroleum. However, food data show that the country's private sector was the biggest food importer in FY22, and is in the first half of the current fiscal year too.

But traders and private importers have been accusing the banks of cold shouldering their LCs even for food essentials ahead of Ramadan, when the consumption of several imported items such as chickpeas, dates, edible oil and sugar see huge surge. They fear the supply disruption may fuel the pinching inflation further.

Amid a tight dollar supply, private banks say they are helpless as the central bank in October last year turned down their request about supplying the greenback from the reserve for imports of daily essentials including food.

Instead, the central bank asked the private lenders to manage import payments by collecting dollars on their own, resulting in the overall import dropping drastically in July-December.

LC opening for import in July-December plummeted by 26.50% compared to the corresponding period of the previous year.

Treasury officials of several banks told The Business Standard that they are now focusing more on collecting dollars than opening import LCs. They also attributed a global inflationary shock to the falling import.

However, Md Abdus Salam Azad, managing director of state-owned Janata Bank, said they are also providing support to private importers alongside the government goods.

"Though there was a pressure to prioritise government imports, we settled around $1.2 billion imports mostly by key private sector players," he told The Business Standard.

The MD claimed Janata's import LC opening has been almost normal so far, except a bump in June-July last year.

"We are going just a bit slow now. For example, we opened LCs worth $2-$3 million per client earlier. But the central bank has now asked us to reduce it a bit," he commented.