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Bangladesh - September 14, 2023

Top exporters in great depression

Entrepreneurs unable to pay LC debts

Mahfuz Emran: Large exporters have been hit hard by the ban on the transfer of export earnings dollars from one bank to another bank to repay the debt of the letter of credit or LC. Inability to transfer dollars from one bank to another is hampering LC’s debt repayment.
In this, it is not possible to pay the debt of another LC of the same exporter to another bank with dollars held in one bank in the name of a company of the exporter. Due to the crisis, there is not enough foreign currency in the market to buy dollars from other banks to repay the debt. Meanwhile, on the one hand, the reputation of the bank is getting bad, on the other hand, the customer is also getting bad name due to not being able to repay the debt on time.
The additional interest against the loan has to be paid indirectly to the exporter. Exporters are affected in two ways. On the one hand, not paying the debt on time is causing bad reputation, on the other hand, having to pay extra interest. As a result, the production cost of export products will also increase. It will reduce global competitiveness. Which will damage the country’s economy.
Besides, exporters can’t keep dollars for more than 30 days. If the dollar earned through the export of the company is not used within 30 days, the bank is encashing (taking the equivalent amount of dollars with the customer’s money). After the specified period (30 days) the concerned exporter has to buy dollars from the market if the LC is to be opened. But due to the crisis, dollars are not available in the market as per the demand. As a result, LC opening is also hindered. There is a fear that especially the export trade will be affected.
Exporters said that there is now a severe dollar crisis in the market. Among them there are not enough dollars to open LC without own arrangement. In this situation, the ban on dollar transfer will add to the complexity of opening new LCs. Similarly, there will be delay in repayment of LC debt. At the same time, the normal flow of dollars in the market will be disrupted. As a result, the crisis will intensify.
On August 4, Bangladesh Bank issued a circular saying, from that day, the remaining dollars after paying the back-to-back LC liabilities with the dollars coming in the name of the bank exporter cannot be transferred from one bank to another bank.
At the same time, if the exporter does not use any dollar within 30 days, the bank can monetize it on its own responsibility and use it for other purposes. Earlier, the value added or value-added portion from the dollar earned by the exporter i.e. the dollar that was in the exporter’s account could be transferred to another bank by repaying the liability of the back to back LC. Now that can’t be done.
In this context, former president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Fazlul Haque said that the new rules will cause more problems for big exporters. Because small exporters don’t have much dollar after paying off back-to-back LCs. Big exporters have quite a few dollars.
These they later use in various sectors. An exporter has a diversified business. In addition to export, many things including industrial machinery, commercial industry raw materials have to be imported. To avoid risk, the same trader opens accounts in different banks and does business. For this reason, dollars have to be transferred from one bank to another. As a result of the new rules, it is now closed.
This will create problems in paying the LC debt of another bank with dollars in one bank. Earlier, there was no problem in this regard. Now comes a big obstacle in this regard. Earlier it was possible to pay off the LC debt easily, but now it cannot be done.
Meanwhile, an official of Bangladesh Bank said that the restriction has been given to stop the misuse of dollars. This will reduce the tendency to hold the dollar. As a result, the flow of dollars will increase in the market. At the same time, if the bank monetizes the dollar within a month, the crisis will also reduce a little. Then the bank can use these dollars in case of another LC.
According to sources, the major industrial groups have a large import business along with their export business. Many exporters deal in consumer goods. To import these products, they transfer the dollar of the export income to another bank and use it. At the same time entrepreneurs imported machinery to modernize existing industries. Machinery is also imported to set up new industries. Banks are not able to provide dollars according to demand to open LCs in these sectors. That is why many entrepreneurs open commercial LCs with export dollars in other banks. Now that is not possible.
Entrepreneurs said that the new rules are creating problems in paying LC debts of other banks. Despite having dollars, they are unable to transfer dollars.
When asked, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said, the new rule has been very painful for the exporters. Exporters are not able to pay the debt of the bank through which the export dollars came, and pay the debt of the other bank with additional dollars. Good customers will also default. It should be withdrawn as a matter of urgency.
He also said that Bangladesh Bank is giving many facilities to exporters, not denying that. However, before taking any decision, it is better to take the opinion of the concerned stakeholders. The problem could have been highlighted if the exporters were sat down before making the new rules.
According to the sources, according to the new rate of dollar, in case of import, every dollar has to be bought at Tk 110. Consumers are getting Tk 109.50 against every dollar of export. If the same entrepreneur is an exporter and importer then he has to pay an average loss of 50 paise per dollar.
The exporter can take part of the remaining dollar in “back-to-back’’ LC liabilities from export dollars as retention quota. The rest of the dollars should be used in the same bank within 30 days. If not, the bank will monetize those dollars by its own entrepreneur. In this case the exporter will be given Tk 109.50. But when the exporter again opens the LC for import of commercial or industrial machinery, he has to buy dollars for Tk 110.

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