LC settlement drops by 26.6% in March

LC (letter of credit) settlements declined by 26.6% in March this year due to a slowdown in new business and investment in the country.

A senior official of the Bangladesh Bank confirmed the information to The Business Standard.

At the same time, the dollar rate in banking channels has started to fall again. Yesterday, several private banks traded dollars between Tk122.90 and Tk122.98, down from around Tk123.10 last week.

Banks settled LC payments worth $4.66 billion in March, compared to $6.35 billion during the same period last year, indicating a decline in imports.

LC settlement refers to the final stage in international trade where the importer’s bank pays the exporter after verifying that all contractual documents have been properly submitted.

Economists and bankers say the overall economic situation has negatively affected both LC openings and settlements. The slowdown in new business activity has reduced demand for imports, particularly capital machinery. 

Additionally, uncertainty stemming from the war in March discouraged traders, as concerns grew over whether shipments would arrive even after opening LCs. Many also avoided opening LCs to hedge against potential volatility in the dollar rate.

Mohammad Ali, Managing Director of Pubali Bank Limited, said the decline in exports has played a key role.

“Lower exports have reduced the opening of back-to-back LCs, which in turn has lowered LC settlements,” he said.

He added that LCs settled in March were mostly opened in January and February, when exports were already weak.

Former World Bank Dhaka office lead economist Zahid Hussain said March was marked by extreme uncertainty due to the war.

“Even after the February elections, investment did not pick up as expected. There was uncertainty over commodity markets, the dollar rate, and whether goods could be shipped at all,” he said.

He noted that even when the Strait of Hormuz was declared open, ships could not pass the next day, highlighting the unstable situation.

LC opening also declines

According to Bangladesh Bank data, LC openings fell by more than 10% in March. LCs worth $5.77 billion were opened, down from $6.46 billion a year earlier.

A deputy managing director of a commercial bank said the drop reflects reduced business activity. Most new LCs are being opened by the public sector, while private sector activity remains subdued. Bank credit growth to the private sector has also slowed, standing at 6.03% in February.

Dollar supply remains strong

The central bank says there is sufficient dollar supply in the banking system. In fact, Bangladesh Bank purchased $180 million through three auctions from last week to Monday, indicating ample liquidity.

A senior official of a private bank said that while there is some payment pressure, overall dollar supply is strong and import demand is not very high – leading to a slight decline in the exchange rate.