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Bank & Finance - September 13, 2022

BTMA voice concern over banks avoid LC opening

Industry Desk: Bangladesh Textile Mills Association (BTMA) recently expressed worry that most commercial banks avoid opening letter of credit (LC) under Export Development Fund (EDF), UPAS (Usance Payable at Sight) and deferred-payment systems for US$ scarcities which, textile spinners dread, may harm and lead to production holdup of basic readymade garments (RMG) raw material.
The BTMA letter, signed by its President Mohammad Ali Khokon, to the Bangladesh Bank highlights that in such a state domestic spinning mills will have to continue production over the next couple of months only with the present raw materials in stock.
Mohammad Ali Khokon said that BTMA members cannot import the necessary raw materials like cotton, polyester staple fiber (PSF) and viscose staple fiber (VSF) to feed the RMG exporters though the millers already received orders.
“Diminishing stocks of raw materials amid commercial banks’ reluctance to open LCs might ruthlessly obstruct production and exports of textile and apparel items,” BTMA President said in the letter. Usually, Bangladeshi textile mills stock four to five months of raw material – cotton, PSF and VSF on a regular basis – for constant production and exports, Khokon points out, highlighting that it also takes three to four months to get imported raw materials.
“As per data we have, mills might run production for the next three months with their existing raw-material stocks.”
BTMA worries that spinning mills operations might come to a crashing halt if banks don’t open LC for raw material imports, leading to yarn absence. The production interruption will not only extend the existing USD crisis but also upset the export earnings of the country. On top of that increasing unemployment of many workers.
BTMA demanded the central bank to take needed actions and instruct the commercial banks accordingly as regards the opening of LC under EDF, UPAS and deferred systems.
When asked, echoing Khokon’s views, Humayun Kabir Salim, Managing Director, Khantex Fashion Ltd. said, “Most of the apparel factories back-to-back LC date has been expired or overdue – as the RMG orders are not shipped. While banks pressuring manufacturers for payments making us suffer in an unimaginable way.”
Mohammad Hatem, Executive Vice President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said to media, “Under UPAS system banks are receiving delayed payments, in many cases after 150 days, while they have to wait up to one and a half months to settle regards to EDF which usually takes three days. Many banks, currently, are unwilling to open LCs under these systems mainly because of dollar crisis that results in delayed payments.”

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