Does Bangladesh have the most complicated LC opening conditions?

On February 4, at a roundtable organised by Eastern Bank, Hideaki Kojima, the country representative of Japan’s largest lender, said Bangladesh has the most complicated letters of credit opening conditions.

“There are terms and conditions unique only to this country,” he said, adding that the simplification in LC opening conditions is crucial for business growth and investment climate. 

This begs the question: does Bangladesh actually have the most complicated LC opening conditions?

Bangladeshi bankers strongly opposed the comment. 

The terms and conditions of LC opening vary from country to country, said Emranul Huq, managing director of Dhaka Bank.

“Hideaki Kojima might have been talking about an isolated case. It is not true in general.”

In the case of opening a letter of credit, the uniform customs and practice for documentary credit (UCPDC) and foreign exchange regulations are followed, he added.

Mati Ul Hasan, additional managing director of Mercantile Bank, echoed the same as Huq.

“Our LC opening process is developing day by day but it is not complicated at all.”

In some cases, importers imposed several conditions based on their requirement for opening LC, he added.

“LC opening is not so complicated in Bangladesh but it is difficult for small and weak banks,” said Ahsan H. Mansur, executive director of the Policy Research Institute.

The small and weak banks cannot correspond with the foreign banks owing to their small asset size, said Mansur, also the chairman of BRAC Bank.

There is no international rating in the Bangladeshi banks, said Anis A Khan, a former MD of Mutual Trust Bank.

The local banks are confirming their LCs through foreign banks as their word is not acceptable by foreign firms. 

“But the situation is improving day by day,” said Khan, also the former president of the Association of Bankers, Bangladesh (ABB).

Meanwhile, in the first half of fiscal 2020-21, the authorised dealer banks have opened import LCs worth $28.7 billion, down 0.8 per cent year-on-year, according to data from the Bangladesh Bank.

During the period, LCs amounting to $25.02 billion were settled, down 9.31 per cent from a year earlier, thanks to the global coronavirus pandemic, which made global trade more difficult.

The import of consumer goods remained buoyant, suggesting the aggregate demand has picked up after the initial hiccups when the rogue virus jumped out of Wuhan, China at the beginning of last year: $3.0 billion worth of LCs were settled, up 12.4 per cent year-on-year.

Between July and December last year, LCs amounting to $3.2 billion were opened for consumer goods import, up 4.6 per cent from a year earlier.

In keeping with the trend witnessed in investment data, the import of capital goods, industrial raw materials, intermediate goods and petroleum dropped.

In 2020, the Bangladesh Investment Development Authority (BIDA)received fresh investment proposals from 918 local and foreign entrepreneurs worth about $7.1 billion, down by a half.

In the first half of fiscal 2020-21 that began in July last year, $2.4 billion worth of LCs were opened for capital machinery import and LCs amounting to $1.7 billion were settled.

LCs amounting to $2.1 billion were settled for intermediate goods and $2.5 billion opened.

During the period, LCs amounting to $1.7 billion were opened for petroleum imports and LCs amounting to $1.7 billion were settled, both lower than a year earlier.

LCs amounting to $10.3 billion were opened for industrial raw material imports, up from a year earlier, the LC settlement of about $9 billion was lower year-on-year.

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