Dhaka, Bangladesh (BBN)– The rate of cancellation of letters of credit (LCs) for imports jumped by more than 128 per cent or US$1.85 billion in the first 11 months of the just concluded fiscal year (FY) as compared to the same period of previous fiscal.
The value of cancelled LCs rose to $3.30 billion during the July-May period of FY 2016-17 from $1.44 billion in the corresponding period of FY 16, according to the central bank’s latest statistics,
The Bangladesh Bank (BB), the country’s central bank, recently advised the commercial banks to immediately realise the import payments against the unsettled LCs, which prompted cancellation of the LCs at an accelerated rate, officials explained.
They also said the BB’s latest move was to reduce the value of outstanding LCs through ensuring payments or revoking the expired import cases.
However, the value of outstanding LCs came down slightly to US $ 22.03 billion in the first 11 months of the last FY from $ 22.84 billion in the same period of the previous FY.
“There is no scope to show the unsettled import cases as LCs outstanding for an indefinite period,” a BB senior official told BBN in Dhaka.
He also said: “The unsettled or expired import LCs will have to settle or cancel within a reasonable time.”
“We’re collecting the LCs outstanding statement separately from the banks to know the real situation about the unsettled LC cases,” the central banker noted.
Senior bankers, however, said the LCs may be cancelled for various reasons. But it would be affected the banking business, particularly post-import financing, slightly, they added.
They also said the banks were cancelling the unsettled/expired LCs in line with the BB’s advice. “It will help the banks to clean their books.”
Cancellations of the LCs for industrial raw materials jumped by 158.32 per cent to $1.40 billion during the period under review from $541.24 million in the same period of the FY16, the BB data showed.
During the period, the LC cancellation of intermediate goods rose to $270.12 million during the period from $118.51 million in the corresponding period of previous FY while cancellation of capital machinery LCs stood at $239.15 million from $103.73 million.
Besides, the cancellations of the LCs for petroleum products rose to $211.96 million in the July-May period of the FY 17 from $24.80 million in the same period of the previous fiscal.
Official data showed that the LC cancellations had remarkably decreased in the FY13 compared with that in the FY12 due to a comparatively favourable business situation in the country. But, the cancellation rate increased significantly recent years.
The LC cancellations had declined by 46.86 per cent in the FY13 compared with that of an increase of 35.95 per cent in the FY12.
LCs for import of items worth $1.35 billion were cancelled in the FY13 against $2.55 billion in the FY12. The figure was $1.88 billion in the FY11.