Zarif Mahmud: The number of LCs (letters of credit) opening decreased due to the dollar crisis and various austerities. In the first 11 months of the current fiscal year, import credit openings fell by more than $23 billion. Credit flow to private sector is decreasing day by day due to decrease in LC opening. A reduction in credit will reduce production in the private sector. If the production decreases, the factory will be closed. As a result, employment will decrease. There will be no new employment either.
Sector-stakeholders said LC openings have declined due to dollar crunch and tightening. Earlier, to open a large amount of LC, one had to take more loans. Now nobody is taking extra loans due to tightening of LC opening or dwindling dollar supply. As a result, investment in the private sector is decreasing. Therefore, the growth of private credit is decreasing.
According to the report of Bangladesh Bank, LCs worth $5.33 billion were opened last May. As a result, in the first 11 months of the current financial year (July-May), new LCs were opened worth $61.69 billion. In the same period of the last financial year (2021-22), its amount was $84.85 billion. That is, compared to the same period of the last financial year, LC opening has decreased by $23.16 billion or 27.29 percent in the current financial year. However, compared to the 2020-21 fiscal year, LC opening increased by $25.56 billion or 43.11 percent in the last fiscal year.
Along with the opening of LCs, its settlement also decreased. In the 11th month of the current financial year, LC settlement was $62.39 billion. Its amount was $75.13 billion in the same period of the previous financial year. Banks’ open LC settlements in the past have been low mainly due to low supply of dollars.
Bank credit growth to the private sector is declining day by day due to a decline in LC openings. Private sector entrepreneurs are borrowing less as imports fall. Private sector credit growth slowed to 11.28 percent in April, the lowest in 13 months.
Businessmen said that they cannot open enough LCs due to the dollar crisis. So, there is no need to take loan from the bank as before. Imports of capital equipment as well as industrial raw materials also decreased due to the decrease in LC opening. The production of the private sector is decreasing. If production decreases, exports will decrease.
Imports of industrial raw materials and machinery have decreased significantly due to lower LC opening. According to the data of Bangladesh Bank, in the 11th month of the current financial year, LC opening of industrial raw materials has decreased by 31.85 percent. LC opening decreased by 56.91 percent in capital machinery, 18.19 percent in consumer goods and 31.39 percent in intermediate goods.
When asked, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem told, “We are unable to open LC due to technical problems regarding export-oriented imports. For example, buyers are not paying on time. Due to non-payment of back-to-back LCs on time, Bangladesh Bank’s dashboard gets a red mark. As a result, banks can no longer issue back to back LCs. Due to this problem back to back payments are getting stopped. As a result, raw materials for export are not available on time. In case of delay, export has to be done in a hurry. This increases the cost.
He also said that there is no business expansion in the current situation. Because production is being disrupted due to gas crisis. Due to reduced demand in the global market, purchase orders have decreased. The capacity of production is not being used. As a result, imports of both capital equipment and raw materials have decreased. Due to this, the export will decrease in the future. There will not be new employment, rather employment will decrease as a result of factory closures.
At present, Bangladesh Bank has to be informed 24 hours before the opening of loans worth more than $3 million. In many cases, the central bank blocks the opening of large LCs. Besides, the LC is blocking the products for which the LC is being opened, even if the price is not appropriate. Again, due to the scarcity of dollars, many banks have stopped or reduced the opening of large loans. As a result, capital equipment and raw material import debt has decreased.
Bankers say the bank is still in liquidity crunch. As a result, lending to other than selective good businessmen are almost stopped. This reduces the growth of private credit.
However, Bangladesh Bank said that there is no strictness in LC. In this regard, Bangladesh Bank Executive Director and Acting Spokesperson Zakir Hossain Chowdhury said, NBR has tightened the import of luxury goods. And Bangladesh Bank 100% in some products
Margin given. Now if the relationship between bank and customer is good then LC can be opened without margin. It will depend on the bank and the customer. Bangladesh Bank did not tighten. Monitoring regularly. Any irregularity in opening LC is blocked.
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