Eid vacation causes slight dip in import LC opening, settlement in June

The opening and settlement of import letters of credit (LC) in June saw a slight decline compared to the previous month as the banking sector was closed for several days due to the Eid holidays.

According to central bank data, state-owned and private banks in Bangladesh opened import LCs worth $5.17 billion in June, down from $6.83 billion in May. However, LC openings in June increased by nearly 6% compared to the same period last year.

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.

When asked about the decline in LC openings in June, several policy-making officials from state-owned and private banks cited the Eid holidays as the primary reason. 

However, despite the dip, dollar inflow was strong. On average, monthly remittances for the current fiscal year have been below $2 billion. But, in June, the banking sector received $2.54 billion in remittances, the highest in 47 months. 

Increased manpower exports and a rise in the dollar rate contributed to a 10.66% increase in remittance earnings for FY24 compared to the previous year. Since the introduction of the crawling peg exchange rate in May, remittances have been rising.

The country's remittance earnings increased by 10.66% in the recently concluded FY24 compared to the previous fiscal year due to several factors, including an increase in manpower exports and the rise in dollar rate. Remittance inflows have been on the rise since the crawling peg exchange rate was introduced in May.

Sohail RK Hussain, president and managing director of Bank Asia, told The Business Standard that the main reason for the import LC decline in June was the closure of banks for several days due to Eid. "Additionally, the demand for opening LCs is generally low during the Eid months compared to other times." he added.

Commenting that the dollar liquidity situation is better than before, he said, "There are two reasons behind it. Firstly, an increase in remittance flow, and secondly, a decrease in the demand for opening LCs."

"Apart from that, many expatriates have started depositing foreign currency in offshore accounts, which would potentially boost dollar inflow in the coming days," he added.

According to the Bank Asia MD, though the first week of July saw fewer LC openings, the demand for LCs for wheat and fertilisers may increase in the remaining weeks. 

A managing director of a private bank said that the ready-made garment (RMG) and production-related sectors typically remain closed for 10-15 days during Eid. "With production halted, the need for raw materials drops, reducing the tendency to open import LCs during Eid months," he added.

For the last one and a half years, the central bank has been taking many steps to reduce import costs, including a 100% margin for opening import LCs and discouraging luxury goods imports. While these measures have improved the balance of payment trade and current account balance, the financial account deficit has worsened due to rising public and private debt repayments and trade credit.

Import LC settlement declined marginally in June

According to central bank data, banks made import LC payments worth $5.2 billion in June, slightly less than in May. However, LC settlements in June increased by 10% compared to the same period last year.

A senior central bank official said that the pressure of deferred LC payments has reduced as banks reduced the opening of deferred LCs to avoid exchange rate risk. As a result, the payments have also decreased, he added.

In FY24, a total of $66 billion in import LCs were settled, down from $72.91 billion in FY23, marking a 9.47% decrease compared to the same period last year.

A managing director of a private bank said that currently, banks are selling dollars for LC settlements at rates between Tk118.60 and Tk118.90. Additionally, they are collecting remittance dollars at a maximum rate of Tk118.50, he said.