The value of import letters of credit (L/Cs) in Bangladesh in December 2008 was 30 per cent down compared with the same month a year earlier according to central bank statistics.

Several factors appear to have contributed to the fall in import L/C demand, including lower commodity prices and importers' reluctance to buy in the light of the economic downturn.

Commodity prices

Import L/Cs worth US$1.313 billion were opened during December 2008 compared with US$1.876 billion in the same month in 2007 according statistics published by Bangladesh Bank (BB).

"The overall opening of L/Cs in terms of value has fallen during the period under review in line with a declining trend in prices of commodities, including petroleum products, in the international market," a senior BB official told local media.

"Most importers have been maintaining a wait-and-see strategy to avoid any financial risk. As a result, the opening of fresh L/Cs against imports has dropped recently," he added.

Optimism

Commercial banks are however optimistic that an increase in the opening of import L/Cs is imminent since a newly elected government has now assumed power in Bangladesh after two years of interim administration.

Importers may move forward to open fresh L/Cs for importing essentials, raw materials and capital equipment in the expectation of political stability a senior official of a private commercial bank is reported as saying.

Contrasting statistics

The decline in value of L/Cs in December 2008 contrasts with a 3.3 per cent increase in the value of import L/Cs opened in the second half of 2009 compared with the same period in the previous year.

Import L/Cs worth US$11.084 billion were opened in the six months to December 2008 compared with US$10.721 billion of import L/Cs opened in the same period in 2007.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.