Textile mill owners in Bangladesh have told local media that commercial banks, particularly those in the public sector, have been refusing to open their letters of credit (L/Cs).

The reasons why the credits are hard to come by are unclear to the mill owners, but the L/C supply could be restricted by high demand from traders or a lack of foreign exchange.

Worsening situation

"Banks are not allowing our members to open L/Cs in many cases for unknown reasons during the last few months," according to chairman of Bangladesh Textile Mills Association (BTMA) M A Awal.

He told the Financial Express that the shortage "has posed a serious problem for us," and the business daily adds that other BTMA members said the problem has worsened over the last 40 days.

Possible reasons

Earlier this year high volumes of L/Cswere contributing to a persistent liquidity problem in Bangladesh's banking sector (DC World News, 31 March 2005), and it could be that high demand is restricting banks' capacity to open new credits.

A shortage of foreign exchange, however, is the main reason banks are refusing to open L/Cs, according to the BTMA members.

Whatever the reason, the L/C shortage "is a roadblock to the development of country's textile sector which earned US$6.0 billion in the 2003-04 fiscal year," according to one mill owner who spoke to the Financial Express.

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