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Import LCs opening and settlement rise by 20% in February

Import LCs opening and settlement rise by 20% in February

  • 23.03.2025 17:22
  • tbsnews.net
  • Keywords: High Risk, Low Risk

Import LCs in Bangladesh rose by nearly 20% in February, driven by increased remittances and exports. Despite this growth, capital machinery imports dropped significantly, sparking concerns over industrial expansion and economic impact.

Alphabet Products

Estimated market influence

Mutual Trust Bank (MTB)

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Analyst rating: N/A

The bank's CEO provided insights into import LC trends and highlighted the decline in capital machinery imports.

Private Bank

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Analyst rating: N/A

A managing director from a private bank commented on the impact of declining deferred LCs on payment schedules.

Context

Analysis of Import LCs Trends in Bangladesh (February 2024)

Key Facts and Data Points

  • Import LCs Opening:

    • Increased by 19.92% year-on-year to $6.26 billion in February.
    • Cumulative opening for first two months of FY25: Over $6 billion.

  • Remittance Inflow:

    • February remittances: $2.53 billion (4th-highest monthly inflow).
    • July-February FY25 remittances: $18.49 billion, up 23.8% YoY.

  • Export Earnings:

    • Growth of nearly 11% in first eight months (July-February) YoY.

  • Import LCs Settlement:

    • February settlements: $5.74 billion, up 20.59% YoY.
    • Cumulative settlements for FY25 (first eight months): $46 billion.

  • Sector-wise Imports:

    • Consumer goods and industrial raw materials: Rising demand.
    • Capital machinery imports: Declined by 30% YoY.
    • Intermediate goods and petroleum products: Decline of 7% YoY.

Market Insights

  • Boost in Dollar Availability: Higher remittances and exports have increased dollar availability in the banking sector, enabling higher LC openings.
  • Shift to Sight LCs: Increased preference for sight LCs (payments upon document presentation) has accelerated settlements. This trend reduces deferred payment pressure on banks.
  • Economic Concerns: Decline in capital machinery imports raises concerns about industrial expansion and employment generation.

Competitive Dynamics

  • Banking Sector Focus: State-owned banks are prioritizing clearing overdue payments, driving LC settlement growth.
  • Impact on Private Banks: Decline in deferred LCs has reduced payment burden on private banks but may limit their ability to extend credit for capital investments.

Strategic Considerations

  • Industry Investment: The decline in capital machinery imports suggests a lack of focus on production scaling and capacity building. Industries need to invest in machinery to sustain growth.
  • Policy Implications: Policymakers should encourage import of capital machinery through incentives to support industrial expansion.

Long-Term Effects

  • Economic Growth Risks: Continued decline in capital machinery imports could hinder industrial output, job creation, and long-term economic growth.
  • Inflation Pressures: Increased imports of consumer goods and raw materials may lead to inflationary pressures if demand outpaces supply.

Regulatory Impacts

  • Central Bank Directives: Focus on LC settlements aligns with central bank policies aimed at improving payment systems and reducing trade barriers.
  • Future regulatory measures may target import diversification and capital machinery incentives to support industrial growth.

This analysis highlights the interplay of economic factors, market trends, and policy dynamics shaping Bangladesh's import sector in FY25.