Both the opening and settlements of letters of credit (LCs) dropped in December, the last month of 2023 calendar year.
Bangladesh Bank's latest data revealed that LC openings in December dipped to a six-month low of $4.90 billion, which was also a 7% decline from November.
LC settlements were a different picture though, as December's figure of $4.53 billion was the lowest in the last three years, specifically 37 months.
However, previous lowest payments for LC settlements were $4.41 billion in November 2020.
Regarding the drop in LCs, bankers informed that they were now opening two types of LCs -- opening sight LCs and deferred LCs.
On the other hand, economists are saying that due to the good flow of remittances, foreign loans and aid in the last two months, the liquidity situation of dollars in banks is now favourable.
An LC at sight is a document that ensures payment of goods provided by an exporter to an importer.
The money is paid when the former provides the LC at sight and other required documentation. When all the conditions are satisfied, the payment is released.
Bankers said that for any opened sight LC, the payment must be made within a week.
On the other hand, deferred LCs provide a window of 90-180 days for payment.
In most cases, banks prefer to open deferred LCs for import transactions.
Bankers said that a significant portion of the LCs, for which payments were made in December, were opened for import transactions that took place between July and September last year.
Businesses point out that for the last one-two months they are trying to open Ramadan LCs ahead of Ramadan in mid of March this year.
For that essential commodity importers and traders on January 3 demanded the government provide zero margin facility on opening LCs for imports of six commodities during the upcoming Ramadan.
The six items are onions, cooking oil, sugar, lentils, chickpeas and dates.
Currently, the LC margin depends on bank-client relationships except in the case of import of luxury goods, on which there is a 75% to 100% margin in place.
Senior Commerce Secretary Tapan Kanti Ghosh said earlier that LC margins as high as 100% were being imposed by banks for the import of essential commodities.
This means importers have to deposit 100% of their total import payments while opening LCs, which hinders competition among importers.