Importers are grappling with rising LC (letter of credit) confirmation fees charged by foreign banks, primarily due to the country’s fragile banking sector. The fees have surged from 1.7%-2% in June last year (2022) to 3.5% of the import value on LCs per year. This has resulted in significantly higher import costs for businesses, which are ultimately being passed on to consumers, contributing to inflation.
Around 80% of Bangladesh’s total imports of $75 billion last fiscal year were backed by LC confirmation from third-party banks, costing local importers an additional $1.8 billion. The recent increase in fees is exacerbating the financial strain on businesses already facing a dollar crunch, leading to concerns of defaults.
The surge in LC confirmation charges is attributed to the declining creditworthiness of local banks, a downgrade in the country’s credit rating, payment delays, and a global rise in interest rates. While some banks have managed to keep fees low by aligning LCs with their payment capacity, others have seen rates escalate due to defaults.
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