Letter of credit (L/C) openings for imports into Bangladesh hit a 16-month high in January, despite the country's severe dollar crisis according to Bangladesh Bank data.

But the increase in import L/Cs is causing concern amongst bankers while many importers are still reporting difficulties in obtaining L/Cs due to the dollar shortage.

Increasing L/C openings

The central bank data says L/C openings soared to US$6.33 billion in January 2024, up from US$5.39 and billion and US$5.72 billion in December 2023 and November 2023 respectively.

In Bangladesh's 2022-23 financial year, monthly L/C openings dropped sharply from about US$9 billion in the first month of the year to just US$4 billion level by the end of the year.

But L/C openings have risen sharply in the current financial year to reach US$5.42 billion by October 2023.

Bankers and traders concerned

The unabated surge in L/C openings is concerning bankers, some of whom blame the dollar crisis on the government's strategy for importing capital machinery for power sector projects.

But while the government may be able to obtain hard currency for imports, smaller traders are still experiencing difficulties.

The Al Jazeera news agency for example last week reported how a spice trader has made at least four attempts since November to open an L/C to pay for imports of cumin, cardamom and cloves, some of the most essential spices used in Bangladeshi cooking, only to be refused by banks due to the dollar shortage.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.