In December 2023, letter of credit (LC) settlements in Bangladesh hit a 37-month low at $4.53 billion, attributed to reduced imports over several months. The decline, from a previous low of $4.41 billion in November 2020, is explained by a decrease in payment pressure. Banks are now opening both sight and deferred LCs, taking advantage of favorable dollar liquidity due to robust remittances.
Sight LCs require payment within a week, while deferred LCs offer a 90-180-day payment window. LC openings in December also dropped to a six-month low of $4.90 billion, down 7% from November. The July-November period saw a 27% YoY decrease in LC openings for consumer goods and a 17% YoY decrease for capital machinery and intermediate goods.
Bank CEOs, cautious about LC payment security, have reduced LC openings, easing payment pressure. The uncertainty preceding national elections and a dollar crisis due to diminishing reserves have also contributed to decreased LC openings for capital machinery. Despite the challenges, with the conclusion of elections, there’s optimism for a gradual increase in LC openings in the coming months.
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