Economy
Rising dollar inflow leads highest LC openings in 23 months
A surge in the inflow of remittances and export proceeds has led to an increase in dollar supply in commercial banks, resulting in the highest letter of credit (LC) openings in the last 23 months in May.
However, LC settlements during the same period experienced a slight decline compared to April.
Bangladesh Bank data shows in May, both the government and private commercial banks opened import LCs amounting to $6.83 billion.
The previous highest $7.02 billion worth of LCs were opened in June 2022. Since then, despite fluctuations, LC openings have generally followed a decreasing trend.
In April of the current year, LCs worth $5.68 billion were opened. LC openings in May increased by more than 20% compared to April. In comparison to the same period in 2023, LC openings in May increased by 19.5%.
According to several policy-setting officials from both government and private commercial banks, the inflow of dollars in May was higher compared to normal times. One significant reason cited was the receipt of remittances amounting to $2.25 billion in that month. The figure stands in contrast to an average monthly remittance inflow of less than $2 billion in the current fiscal year.
Besides, despite a decrease in overall exports in May, there was a slight increase in export LCs in banks compared to previous times. Payments for previously made exports started arriving. With the initiation of the crawling peg in the exchange rate on 8 May, exporters are obtaining more favourable rates for dollars, prompting them to bring these back into the country.
Syed Mahbubur Rahman, managing director and chief executive officer, Mutual Trust Bank, told the nes reporter, “Due to the recent activation of the interbank dollar market, which was previously inactive, banks are now able to collect dollars from there. As a result, even though some banks have experienced a decrease in remittances, they are gaining confidence in acquiring dollars from the interbank market. This assurance has enabled them to open more Import LCs.”
The banks in the country are benefiting from the introduction of the crawling peg in the exchange rate system, he said.
“The crawling peg system has reduced the gap between the market rate and the dollar rate, giving customers more confidence to open LCs.”
Mahbubur also said similar to industrial raw materials, the volume of LCs for intermediate goods imports also rose. He mentioned that this trend is positive for the economy.
The deputy managing director of a private commercial bank said due to a favourable inflow of dollars in May, commercial banks are increasing their LC openings.
He mentioned that there has always been demand for LC openings, but previously they used to be more cautious in approving import LCs. For example, if someone applied for 5 LCs earlier, they might have approved only 2. However, in May, due to the good dollar flow, they on average approved 4 out of 5 LC applications.
In May, there was a slight increase in opening LCs for government imports, including jute oil and fertilisers. An official from a state-owned bank said one of the main reasons for this increase is the greater availability of foreign exchange, which facilitated more LC openings in bank accounts.
Ali Reza Iftekhar, managing director and chief executive officer of Eastern Bank told the news reporter, “Our liquidity situation in dollars has improved compared to before. Remittance flows are now steady. Moreover, our bank’s export proceeds have also increased. Additionally, there are now dollar transactions happening in the interbank market, which has led to an increase in dollar inflows.”
Transactions in this market were almost closed for a long time, he said, adding, “As a result, we have been able to increase our LC openings for imports. This trend will gradually move towards further improvement.”
LC openings, however, may decrease slightly in June due to the banks’ accounts being closed for a few days during Eid, said a senior official of a leading private bank.
“Besides, RMG and production-related houses remained closed for several days during Eid. As a result, there is reduced demand for raw materials. These factors contribute to a trend of decreased LC openings for imports during the Eid months.”
In the first 11 months of the current fiscal year, a total of $63.02 billion worth of import LCs were opened — a slight year-on-year increase from $62.08 billion.
LC settlements in May decrease slightly
In May, banks settled import LC payments totalling $5.48 billion, which was 5% lower compared to April, central bank data shows.
A senior official of the central bank said currently, the pressure on deferred LC payments has reduced compared to before. “Banks have reduced opening deferred LCs to mitigate exchange rate risks. Consequently, the volume of payments has also decreased,” he said.
In the first 11 months of the current fiscal year, LC settlements for imports decreased by 12% to $60.79 billion compared to the same period of the previous fiscal year.
A managing director of a private bank said due to lower LC openings in the past two years, pressure on payments reduced. Currently, banks are selling dollars at rates between Tk118.40 and Tk118.70 for LC settlements. On the other hand, they are collecting dollars from remittances at rates ranging from Tk117.80 to Tk118.30.
Expatriate Bangladeshis sent approximately US$ 2.11 billion in remittances during the first 28 days of September in the fiscal year 2024-25, according to data released by Bangladesh Bank on 29 September.
Of this total, state-owned and specialised banks handled $679.10 million, while private banks received $1.43 billion in remittances.
Chief Adviser to Bangladesh’s interim government, Professor Muhammad Yunus, has vowed to expedite reforms and hold elections swiftly. Yunus, who recently assumed the role after the collapse of Prime Minister Sheikh Hasina’s 15-year administration, expressed his commitment during an interview with Tokyo-based news outlet NHK WORLD in New York on Sunday. He was attending the United Nations General Assembly at the time.
Following mass student-led protests that ended Hasina’s long-standing rule in August, Yunus stepped in as the leader of the caretaker government. Known for founding Grameen Bank, an institution providing microloans to the underprivileged, Yunus, along with the bank, earned the Nobel Peace Prize in 2006 for his efforts in poverty alleviation.
During the interview, Yunus emphasized that the interim government’s primary mission is to implement reforms promptly and ensure elections are held as soon as the groundwork is complete. He underscored the importance of success, stating, “Failure is not something that we can accept.”
Addressing the pivotal role of students in the ousting of the Hasina administration, Yunus acknowledged the sacrifices made by young people, referring to their involvement as part of a “revolution.” He highlighted his intention to engage the younger generation in shaping policy.
Furthermore, Yunus called for continued support from Japan, Bangladesh’s largest donor, during this crucial transition period. He stressed that Japan’s assistance is vital to stabilizing Bangladesh’s economy and fostering a democratic foundation in the nation.
Syeda Rizwana Hasan, the Adviser for Environment, Forests, and Climate Change, announced today that steps will be taken to restrict the use of polythene shopping bags to safeguard future generations.
Starting from October 1, polythene bags will be banned in shopping malls, followed by a ban in kitchen markets from November 1.
“Everyone must take responsibility and stop using polythene voluntarily. Action against polythene producers will begin from November 1,” Rizwana Hasan stated during a seminar.
The Department of Environment (DoE) organized the seminar to raise public awareness about alternatives to banned polythene bags.
Rizwana Hasan highlighted that the restriction on polythene will be executed in phases according to legal provisions, and discussions with shopping centers and store owners are ongoing to ensure a smooth transition.
She also announced plans to make the government secretariat a plastic-free zone by December.
Other speakers at the seminar included Environment Secretary Dr. Farhina Ahmed, DoE Director General Dr. Abdul Hamid, Director Rajinara Begum, President of the Shop Owners Association Muhammad Helal Uddin, and Md. Arifur Rahman Bhuiyan, Assistant Professor of Environmental Science at BUP. They discussed the harmful effects of polythene and the need for alternative products.
Earlier, Rizwana Hasan inaugurated a fair showcasing eco-friendly alternatives to polythene bags and visited 24 stalls. The fair featured products from government and private entrepreneurs, including reusable bags, jute bags, paper bags, and items made from bamboo and cane.
